Here’s the digital currency paradox: more is written about them – in the press and on social media – than about any of the legacy currencies such as the U.S. dollar, the Euro, or the Yen. And yet when you add up all the value of all the leading digital currencies, the total is a small fraction of the worth of the world’s richest man.
That man is Bill Gates, the Microsoft co-founder with a worth estimated at $79.2 billion. Yet, add up all the digital currencies – from Bitcoin to Ripple to Litecoin and many dozens more such as the recently introduced Scotcoin – and there is scarcely a $10 billion value. That is a speck in the many trillions in value of legacy national currencies. The U.S. dollar alone has 1.2 trillion dollars in circulation.
So why all the noise?
The big advantage: digital currencies operate at a remove from the government run central banks. Usually there are said to be upwards of 600, with perhaps 30 ranking as major players. While central banks usually operate to serve the interests of their nation, digital currencies operate to serve the interests of the users. They are based on computer rules, not on political whims.
Another big advantage: digital currency can move instantly, in essentially the time it takes for bits and bytes to travel. In theory they can take the friction – and the huge fees – out of cross-border money movement. Not to mention that money can also move in an instant.
Another notable advantage is that transaction processing with digital currencies is typically very low cost, much cheaper than processing legacy currencies or credit card debits. Precisely because they are digital. and were built from the ground up to be so, there are built-in efficiencies in digital currencies.
For starters, the adoption of just about any innovation involving money tends to happen at a slow rate. People are just conservative when their money is involved. A 2014 report from the U.S. Federal Reserve underlined how slowly progress takes roots: for many of us, said the Fed, old fashioned cash is still the preferred payment vehicle for most purchases.
Bottomline: digital currency usage keeps growing little by little. More retailers, from Microsoft and Overstock.com to Air Lituanica and Airbaltic, now accept a digital currency, generally Bitcoin.
One big question is why no nation has adopted a digital currency as its own? Maintaining a national currency is expensive and going digital would wipe those costs off the books. Some nations in fact shut down their currencies – El Salvador, Ecuador, and East Timor are cases in point – but what they did was turn to the US dollar as an unofficial official currency. Nevertheless, many experts maintain that we will soon see a nation transition to digital currency.
Just as computer programs continually improve, so too do digital currencies. Many experts believe we are on the cusp of big improvements in these currencies – perhaps existing ones will get better, perhaps new, better ones will enter the scene. The future of digital currencies is bright. It’s just that no one quite knows exactly what that future will be.