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FinTech

How might cryptocurrencies take off?

Joseph Raczynski  Manager, Technical Client Management, Thomson Reuters Legal

Joseph Raczynski  Manager, Technical Client Management, Thomson Reuters Legal

I have little doubt that in a decade or less we will have a world currency akin to Bitcoin. The implications on both the legal world and government legislation will be significant. Right now, there are dozens of cryptocurrencies out there: Dogecoin, Litecoin, Peercoin, and there are many more on the horizon. Each has unique aspects but all have a similar focus: security, ease of electronic money exchange, and the avoidance of a centralized banking system.

Certainly the most popular cryptocurrency to date is Bitcoin, which started the concept in 2009 after its creation by an anonymous inventor known as Satoshi Nakamoto, a Japanese equivalent to “John Smith.”

Bitcoin is incredibly intriguing because it is a natural product of the Internet, a decentralized forum of exchange and connectedness. Currently, for two people to exchange money we typically have to route money through various exchanges which all take fees merely for passing the money along. The success of cryptocurrencies demonstrates that those traditional fees are outdated and excessive for current transactions.

While traveling in Thailand recently, I took $100 out of an ATM. With the fees — i.e., Thai ATM fee, foreign transaction fee, and a cut of the exchange rate my bank charged — I spent $23 to get that $100. The fee for a similar transaction from dollars to Bitcoin would have been in the neighborhood of 20 cents. The fees of yesterday by the banks made sense decades ago, but now given today’s advanced and speedy technology, those extraordinary fees bear little relation to the actual cost of electronic money exchange.

So where will cryptocurrency revolutionize currency exchange?

Cryptocurrency micropayments

Premium content on the Web will be changing. If you want to avoid the dominate Internet model of advertising, think about cryptocurrency micropayments. That is, with Bitcoin you can pay people in tiny fractions of a cent. You could then create an account with The New York Times that every time you wished to read a story you would click a link and automatically you would pay ½ a penny. That may not seem like much, but if everyone embraced this model, content providers would actually be paid for the quality of their content rather than having to serve you ads to pay for the content. This model is similar to music providers offering unlimited music for a monthly fee, but with that fee broken down into per-play royalties.

Stability for developing countries

Instead of a widely vacillating currency in a country, people could rely on this world currency to be sturdier, because it is not solely dependent on how a single country’s economy is performing, but rather on the stability of the whole world’s economy. Local government action would not be a factor. In addition, money would not have to be printed, but people could exchange money from person-to-person on their phones. This is already being done in African countries as people conduct value exchange via text messages. Having a cryptocurrency would be much more secure and reliable digital system than the current practice of text message money exchange.

Cutting down on fees and central banks

As I mentioned previously, with a cryptocurrency, Visa, American Express, Master Card, Discover Card and all of the other credit cards could be potentially threatened. In fact, most of their business potentially could go away, especially with those people that use debit cards or pay their bills monthly. Banks could also be threatened. Some ask, why would I house my money in a bank which has a set of rules and a multitude of fees and regulations? In addition, a lack of convenience with banks means walking or driving to receive money. All of that could be avoided with a digital wallet where the individual is the person in complete charge of the money.

Cryptocurrency roadblocks

The market for growth in this arena will increase substantially in the years ahead. That said, there is little question that several challenges to cryptocurrencies persist. One, a lost electronic wallet is gone forever. If you have not created a backup ledger or saved it digitally in a safe place, you could lose all of your assets. Two, cryptocurrency insurance does not exist. Digital currency is not FDIC-insured as bank deposits are. Again, it is the responsibility of the individual to own this and make sure they have diversified their assets in safe locations.


Learn more

View this story as it originally appeared on the Legal Executive Institute blog.

Hear what the SVP of Visa’s Digital Solutions and other cryptocurrency experts had to say in a debate about the future of money.

Explore Thomson Reuters Legal solutions.

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