by Aaron Sturgis
The Global Financial Crisis which occurred in 2007-2009, is considered by many economists to have been the worst economic
recession since The Great Depression. The bursting of the housing and credit bubbles, caused mainly by the expansion of subprime lending, caused many major financial institutions to fail altogether and declare bankruptcy. The crux of the issue with many of these failures was banks playing fast and loose with day trading, using advanced computer systems to practice arbitrage as quickly as possible, taking advantages of fractions of cents in stock changes but on hundreds of millions of shares. Many of these banks, who essentially gambled with their clients’ money, were then “bailed out” by the federal government, provided vast loans at 0% interest with very pliable repayment dates and terms.
The biggest social side effect of this is the growth of public distrust in centralized banking as a whole, and one of the largest developments from this distrust is the advent and explosion of cryptocurrencies. The literal definition of a cryptocurrency is a “digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.” In layman’s terms, it means this: you have independent control of all the money that you have converted into a cryptocurrency, as does everyone else, and any money exchanged between individuals can be executed entirely on a person-to-person basis, taking any central financial institution out of the equation.
And in an ideal world, this sounds like a wonderful idea: taking the big corporations out of the equation, those same corporations who failed to manage our money properly in the first place, and put control of our finances back in pur hands. Part of the problem is, spending Bitcoin (or any other cryptocurrency) is difficult at best – no major retailers accept it as a viable method of payment yet, so most transactions are executed on an individual basis, and it is much harder to trust a stranger on the internet than it is Walmart or Amazon. The other major issue is that most of these cryptocurrencies are still extremely volatile. Bitcoin started off as a volatile currency, with many investors losing hundreds of thousands investing as it bounced around for all of 2012-2014.
Bitcoin started off in 2009 with BTC basically having no value at all, reached parity with the US dollar in 2011, and then slowly rose for about a year after having hit a price bubble of $31 and dropping rapidly. Then in 2013-2014, it reached an all-time high of $1216.73 before dropping later that year to as low as $50. While Bitcoin has now settled as a relatively nonvolatile currency over the past 6 months or so, it will take years to rebuild consumer confidence in something that was so risky and untrustworthy in the past. And so, unless cryptopcurrencies like Bitcoin can effectively maintain their reliability, it is possible that cryptocurrency may not be the currency of the future. Because still above all else, the most trusted currency continues to be cold hard cash.
But certainly, cryptocurrencies are not going away anytime soon – and perhaps a new contender will emerge from the fray, with a solid backing and a relatively stable exchange rate. If this happens, retailers will begin to accept cryptocurrencies as valid methods of payment, and Americans will start to place faith in something they picture as essentially gambling. Then again, banks have been gambling with our money for decades. Perhaps a cryptocurrency will become the centralized currency of the future, an inevitable step on a path towards digital globalization: but in the present, it remains exactly as trustworthy as banks in the minds of the American people: not much.