By Sakshi Joshi (Student of Economics) & Shivani Chaudhry (Associate Professor, School of Social Sciences), CHRIST University, Delhi NCR
Every significant upheaval in history has met with its share of detractors. Virtually all revolutions, be they political, technological, or social, have seldom been completely adopted without resistance. Money is no different. Every time we shift from one form of money to another, we bring disruption and with it fear. Fear is the common element of money, and we feared cryptocurrency today as our forebears feared every other form of money prior to that. Each revolution in money has started with fear. Paper was irresponsible, plastic was unsafe, digital payments were unthinkable, and today cryptocurrency is a little of all that again. Yet history teaches us: all that starts out as disruption rarely ends as destruction, it almost always ends as transition.
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If money is the backbone of our economies, then the physical representation of money is not where the essence lies, it is in the trust and belief system. Gold, paper, plastic, or digital entry on a screen has become money because society bought into it and states and institutions acted to support that belief. Economists defined money sometime ago, in terms of its three purposes—medium of exchange, store of value, and unit of account. Sovereign currencies don’t fulfill those roles by any magic, it’s because they have placed anchors that are within regulation, institutional authority, etc. Cryptocurrencies however are volatile, lack sovereign authority etc and therefore fail on these tests. They could not plausibly be depended as stable stores of value or unit of account and are not properly positioned as alternatives for fiat currencies. But dismissing them as irrelevant would miss their wider implications. Their function is not simply that of replacing traditional forms of currency but instead bringing a reassessment of long-term monetary paradigms with a dynamic financial landscape. This is especially pronounced in the field of financial transactions. Take, for example, cross-border transactions, where operational inefficiency too commonly becomes the exception instead of the rule. For instance, a worker sending money can incur fees as high as 6% of the total amount and can experience processing that can take as long as 48 hours. These inefficiencies must not simply be considered as operational deficiencies; they represent a major barrier to economic development for a large number of countries and a huge barrier for families whose economic viability is dependent on the timely receipt of remittances.
Cryptocurrencies have demonstrated that value can move across borders in minutes (rather than up to a week), for dollars or less, while allowing the sender full control with no intermediary taking its cut. While the issue of Bitcoin’s price volatility remains a valid concern, its broader impact on the financial ecosystem is undeniable.In addition to just being considered a speculative commodity, Bitcoin has shifted assumptions within the frame of financial transactions. Delays and excessive fees have been proven not to be fundamental aspects of the exchange of money but rather signs of an obsolete and ineffective financial infrastructure.
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The same dynamic of pressure can be discerned in the concept of financial inclusion. There are still around 1.7 billion citizens globally who are considered un-banked. Traditional financial systems, limited by high infrastructure costs and stringent eligibility requirements, have historically excluded such participants, often relegating them to the margins of formal financial inclusion. In contrast to traditional financial vehicles, the only requirement for crypto was that you have a smartphone and internet access. It is possible for the un-banked to send, store and receive value—as well as sometimes insurance or credit through a blockchain service that does not require a bank. Cryptocurrencies are not going to end poverty, but they are creating pressure. They are telling us what a narrow opportunity traditional banking has permitted, while at the same time asking us to examine who should have money and why.
Countries and central banks have not been blind to this issue. The fact that the Reserve Bank of India is piloting the e-rupee, or that the European Central Bank is working on the digital euro, highlights the importance of crypto in this area. These are not coincidences; these are responses. Sovereign digital currencies wish to capture the good parts of crypto – speed, reduced cost, borderless transfer – while leveraging the stability and credibility of state-run money. None of these projects would have likely been developed in the colonies without the disruption of crypto. This is the paradoxical success of crypto: being perceived as a threat gave exactly the impetus to enable traditional money to go through these changes.
Even beyond currency, blockchain technology—the underlying technology behind crypto assets, is already disrupting finance and insurance. What was once seen only as speculative hype has been adopted to combat fraud, expedite settlements, and unlock supply chains. Insurers are using smart contracts in automated claims with decreased latency and improved efficiency. In banking, blockchain technology is creating possibilities for advances in back-end operations to diplomatically lower costs and risks. These are not unintended consequences; these are observable effects of technological advances that have emerged from the rise of cryptocurrency.
Critics typically render the argument that crypto is unsafe, because of speculation, volatility, or illicit uses. These risks are real but so were the risks of paper currency disrupting gold standards, the risks of credit cards creating debt, and the risks associated with banking online and being vulnerable to cyber theft. Every time, there is going to be a risk that comes with an innovation. It is not a question of whether there are risks; rather, it is a question of how society regulates and manages those risks. To reject crypto outright, would be to behave in the same manner society has behaved hundreds of times before in the past, when fear undermined our ability to see the possibilities that lay underneath the disruption caused by any innovation.
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What, exactly, is the actual threat? It is not that cryptocurrency (crypto) will eliminate money, because it simply cannot. The real threat lies in how policymakers and institutions perceive cryptocurrency. If it is viewed solely as an adversary or as an existential threat they may respond with uniform resistance. Such a reaction could ultimately close off opportunities to explore and engage with the very innovations that hold transformative potential for the financial system.
Crypto has already opened a dialogue around money that creates awareness around its inefficiencies, embraces inclusion, and demands immediacy and transparency. Policy and institutions simply turning their back to this dialogue will not prevent it; it will simply leave societies unprepared for the impending future.
The history of money is one of evolution. Trading with gold broadly provided a level of anonymity and non-counterparty risk that no money form since has provided, but gold walking around, while serving as a payment option, is malleable. Gold yielded to paper, paper produced electronic balances, balances gave way to plastic cards, and cards grew into mobile wallets. Each has radically upended its respective situation, each met tremendous resistance, but each demystified wherever payment was a trust-building apparatus. Cryptocurrencies are not the enemy of this evolution, they are the most disconcerting and disruptive addition. Crypto is not the last episode, but it will likely be an important catalyst.
Cryptocurrency will never replace the currency of trust – and it shouldn’t. What it guarantees, however, is that the concept of money will never again be static. Its purpose is not to displace, but to be disruptive; not to take the place of, but to mimic. When used in combination with sovereign money it can move the financial system towards a faster, more inclusive and more transparent future. That is how crypto will earn its seat at the table – not enemy to money, but agent of change.