In early November 2017, the Governor of the Turkish Central Bank, Murat Cetinkaya, reported stated that digital currencies pose a significant threat to central banks, especially in terms of cash supply, price volatility, and monetary policy. The Turkish government and its central bank aren’t alone in their growing concern over the cryptocurrency market, however.
As the combined market capitalization of all digital currencies continues to rise past $300 billion, it is also becoming increasingly apparent that they will have long-lasting effects on the global finance industry. Furthermore, while bitcoin is still far from overcoming de facto global currencies, especially the dollar, it won’t be long before cryptocurrencies vie for a more prominent role in the world of finance.
In contrast to long-established banks and financial institutions, bitcoin, ether and other digital currencies are decentralized and peer-to-peer. This means that, in a cryptocurrency network, there is no central authority that overlooks transactions or trades. The Bank of Finland once even noted that “Bitcoin is a monopoly run by protocol,” further highlighting how independent and efficient digital currencies have become.
It is clear that the Turkish Central Bank acknowledges the many advantages of Bitcoin though. Cetinkaya also said that the cryptocurrency might very well be a key element in shaping the country’s cashless economy, in turn making digital payment systems more efficient and widely available.
Bitcoin’s explosive growth comes at a time when the youth’s perception of traditional banks are lower than ever, with over 90 percent not trusting financial institutions and banking infrastructures, according to Facebook IQ research. The finance industry is complicated and can sometimes be prohibitively difficult to use for the younger generation. Digital currencies offer the fine balance between security and ease of use that these traditional banks have not managed to deliver in recent years.
For years now, cryptocurrencies have attracted comparisons against other asset classes such as gold and real estate, even prior to the market’s unprecedented growth in 2017. In the past year, Bitcoin has evolved in almost every conceivable way, including but not limited to market share, user interest, transaction volume and worth. With countries such as Japan and Germany legalizing the use of cryptocurrencies, thus enabling their exchange as tender, Bitcoin is bound to be integrated into the finance industry sooner rather than later.
It is safe to say that the digital currency market has already established itself as a formidable asset class. The only problem is that as of right now, a large cross-section of the population still views Bitcoin as a store of value or worse, a speculative investment. The mindset of approaching Bitcoin as a commodity, rather than a currency as initially intended, may prevent it from reaching its true potential.
As governments continue to be torn between legalizing and banning cryptocurrencies, the remarks from Turkish Central Bank lends further credence to some facts. For instance, financial institutions around the world are feeling increasingly threatened and insecure over Bitcoin’s almost hostile takeover of the industry they have dominated for over a century. It may take a very long time for the digital currency revolution to succeed, but as long as it does, we are currently standing on the precipice of such a future.