Cryptocurrencies have been gaining popularity for some time, shaking off their reputation for being the sole preserve of digital outliers. The question now is whether such currencies are close to achieving broader acceptance and whether they could uproot the more popular currencies of today.
Ibrahim Mohammed certainly thinks so, as The National reported. He has developed a sharia-compliant digital currency, which uses the same blockchain technology that underpins bitcoin, the most popular digital money. The point of difference in Mr Mohammed’s currency is, he says, the fact that it is pegged to the price of gold, effectively giving traders a degree of security that other digital currencies lack. The biggest single criticism of bitcoin is its perceived lack of transparency. We don’t know for sure the true identity of Satoshi Nakamoto, the name of the person credited with creating the cryptocurrency. And many remain suspicious of the true value of bitcoin, currently recorded at close to $2,500, and of the decentralised nature of the asset.
That much is the case against cryptocurrencies. Others argue that blockchain technology democratises the financial system, taking power away from a few gatekeepers and putting it into the hands of many.
There is no doubt the world is changing. We are moving from physical transactions made with cash to digital fulfillment. Some of that shift has been made in inches – through the widespread adoption of debit and credit cards – some of it in far greater steps. We see this in sophisticated economies around the world, which are pivoting away from cash altogether. Sweden’s central bank expects only 0.5 per cent of all payments to be made in cash within three years, according to 2016 data. Younger people in such societies are less and less likely to use cash to pay for their morning taxi to work or their afternoon tea. The direction of travel is quite clear.
The success of digital currencies over the long term, such as the one developed in Dubai by Mr Mohammed, depend on security, stability, trust, transparency and transaction cost. Fraud is, perhaps, the biggest single threat to the financial world, but digital currencies are hardly alone in facing that challenge as hackers get ever more tactically sophisticated. Cryptocurrencies will ultimately rise and fall on what it costs to transact. If it costs you a fee to pay for your copy of, say, The National with bitcoin, then you’re more likely to pay with cash or a debit card. Digital currencies are, without doubt, a key part of our future, but don’t write off cash transactions just yet.