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Cryptocurrencies primarily exist to combat the problems with many currencies currently used in various countries worldwide. It seems to do this by giving cryptocurrency owners the power formerly owned solely by the governments and the central banking systems. Today, those issuing cryptocurrencies created them to obey the properties of money while also fulfilling their functions. Cryptocurrencies may assist in solving many of the world’s economic problems. Some of the most popular cryptocurrencies include Bitcoin, Ethereum, and Litecoin. Many of us have heard of people making massive profits running into thousands and millions of dollars through their cryptocurrency investments. However, many still do not understand what cryptocurrencies are. More importantly, the question on most people’s minds is, what is the purpose of cryptocurrency?
What is the purpose of Cryptocurrency?
Looking at the cost of things like houses and cars now compared to the past, we can see a difference in the cost of living. The cost of building a house in the United States used to be far lower than what it is today. All things being equal, houses are not supposed to cost as much as they presently do. However, due to inflation, there has been an increase in the cost of building materials. As building material cost increased, so did the cost of a finished house. The resultant effect is it now costs a lot more to build houses and even more to buy one.
Inflation occurs when a government orders its central bank to print and circulate more money to combat a poor economic situation. The result is too much money in circulation, causing the money’s value to fall and the cost of goods and services to increase. When this occurs, the cost of living increases without a corresponding improvement in the living conditions of citizens within that economy. Hence, people have to spend more for less. Because the government cannot make long-term plans, housing prices and other significant purchases become unsustainable. Like Nick Sexton said on an episode of The Crypto Show, “Inflation exists because of incompetence and politics.”
Cryptocurrencies exist to combat this problem by creating a decentralized currency exchange system. Governments will no longer have the power to inordinately pump money into an economy without a resultant improvement in the living conditions of the citizens.
Why do we need Cryptocurrency?
The need for cryptocurrencies, like Bitcoin, is increasingly becoming more urgent due to inflation. The value of Bitcoin lies in the fact that its supply is essentially limited because the amount of Bitcoin in circulation will never go above 21 million. Nick Sexton explained the importance of Bitcoin by saying that Bitcoin exists so that we don’t overprint money. Bitcoin has a limited supply so that its prices will go down.
Why is cryptocurrency important?
The importance of cryptocurrency on the economy, in general, is one that individuals need to understand because everyone is affected in one way or the other by inflation. For the average person, crypto ensures that they do not live beyond their means. They will spend less on luxury items that they don’t need’ accruing less credit card debt.
Inflation causes a decrease in the value of traditional currencies, forcing people to pay for necessary and unnecessary items with a credit card. They get into the habit of constantly being in debt to credit card companies. Crypto reduces the chances of this happening. Cryptocurrency seeks to create a balance in the economy and the world by allowing a phenomenon known as degrowth. Therefore, there is a lot more value in the economy. It creates a system opposite to the idea of perpetual economic growth that exists today.
The importance of cryptocurrency for the economy include:
- Cryptocurrencies help to combat inflation through their limited supply.
- Cryptocurrencies give room for degrowth to occur.
- Cryptocurrency reduces the chances of credit card debts by making people live within their means.
- Cryptocurrencies create a decentralized currency system.
Conclusion
The importance of cryptocurrency is that nobody has supreme power over the system, and everyone shares the power and risk. Although cryptocurrency is still a relatively new economic concept, it quickly proves that it is the next step in ensuring financial freedom.
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