You may have heard a lot about cryptocurrencies lately, but the truth is that they lie under a wider umbrella of virtual or digital currencies. In fact, not all virtual currencies are tied to black market or illegal dealings that crypto tends to have a reputation for. Instead, virtual currencies can act as an intermediary or alternative to hard cash or having to deal with online banking.
For example, many games have digital currencies which can be bought and exchanged for in-game items, such as with video games. Alternatively, virtual currencies such as bitcoin can be used at online casinos. Either way, cryptocurrencies offer a lot of convenience that traditional money does not.
If you’ve been around the internet at all, you’ve probably heard of the term blockchain, and it’s the technology that is driving the majority of financially traded virtual currencies.
Essentially how it works is that it’s a sort of digital record of transactions made up of ‘blocks’. The blocks are encrypted bits of information that hold information of the previous block, a timestamp, and new transactional information. As such, every new block that is created has the sum of all transactions made in the history of that blockchain.
Does that sound like a lot? It absolutely is, and that’s the idea! Blockchain as a technology is meant to act as a transactional record as much as its meant to be used to actually carry out transactions. Not only that, but the encryption adds an extra layer of security that is nearly impossible to spoof, meaning if a transaction is there, it 100% happened, and is the reason these are called ‘cryptocurrencies’.
Of course, the really big cryptocurrency that everybody is aware of is bitcoin, but the truth is there are now several dozen cryptocurrencies that exist. From the meme-like Dodge coin to the more functional etherium, there’s always some new cryptocurrency coming out and it’s a huge business.
Japan Enters the Fray
Given how popular cryptocurrencies have become, it’s no surprise then that Japan has decided to throw its hat in.
Japan has always had a leading role in the tech market, and so it’s no surprise that the Bank of Japan has started looking at some form of digital currency alternative to the yen. It’s even less of a surprise when you consider that investors have staked nearly 100$ billion on virtual currencies. In fact, the BoJ has already made some investigations into the sector with the experimental Central Bank Digital Currency (CBDC).
To that end, the BoJ is looking at two general issues that surround virtual currencies: accessibility and resilience.
In terms of accessibility, the problem mostly revolves around those who don’t necessarily have quick and easy access to the internet, and therefore the digital currency. This could be because they live in rural areas with little internet connectivity, or it could be due to a telecommunications failure.
As such, the impact of a digital currency has to take into account some form of offline use. Not only is this important for those who still need to use physical cash in some form, but also for emergency cases where there simply is no way to access the digital currency.
As for resilience, it’s another more complicated issue. The main issue is that virtual currencies like crypto tend to be very volatile in terms of value. Bitcoin famously hit $50k at some point before plummeting to $30k and then back up again. It’s this volatility that makes it hard to base national financial decisions. Of course, that being said, there other interesting cryptocurrencies to keep an eye on that seem a bit more stable.
Either way, this is something that will be looked at and is probably something that will be looked at by the country’s Digital Currency Forum. The aim of this forum is not only to analyze and work around any issues that come with digital currencies but also to actually have one ready by 2023. In fact, a feasibility study is slated to happen during 2021, so we might see quick movement on this.
This has mostly been prompted by China’s own moves into the digital currency realm. Interestingly, the People’s Bank of China has already started handing out a digital form of the Yuan to some citizens in both Shenzhen and Suzho. Clearly, this has lit a fire in other countries to get in on the ground floor as soon as they can.
Digital Currencies On The Horizon
Ultimately though, we probably won’t see digital currencies replacing physical or traditional currencies any time soon. There are still a lot of issues to work out, such as accessibility and resilience to large changes. Even more so, governments will need to find a way to instill trust in these digital currencies so that they can be widely accepted.
The slow march of progress to a full-time digital currency will happen, it might just take the next decade or so until we see it come to fruition.