The Future of Cryptocurrencies in the Financial System: Is It the Future of the Financial World?

Will cryptocurrencies become an integral part of our daily lives, or will they remain a unique phenomenon within the financial system?

The Advantages of Cryptocurrencies

Cryptocurrencies, which are based on blockchain technology, offer several advantages that could revolutionize the traditional financial system.

1. Decentralization: The traditional financial system is controlled by central authorities such as banks and governments. Cryptocurrencies operate without intermediaries, which means that transactions happen directly between users, reducing fees and bureaucracy. This is especially important for developing countries where banking services are not as accessible.
2. Transparency and Security: The blockchain is a public ledger where every transaction is recorded. Although users can remain anonymous, the transaction history is transparent and impossible to alter. This increases security by preventing fraud and falsification of transactions.
3. Fast and Inexpensive International Transfers: International transfers through the traditional banking system can take days and incur high fees. With cryptocurrencies, these transactions can be carried out in minutes with almost zero cost.

Technical Foundations: Types of Blockchains

The core of cryptocurrencies is blockchain technology, which has different models.

• Proof-of-Work (PoW): This is the decentralization mechanism used by Bitcoin. It requires powerful computational calculations (mining) to validate transactions and create new blocks. The advantage of PoW is its security, while its disadvantage is its enormous energy consumption.
• Proof-of-Stake (PoS): This is a newer model used by Ethereum (which transitioned to this system in 2022) and Cardano. PoS does not require energy-consuming calculations; instead, transactions are validated by participants who hold a certain amount of the cryptocurrency. It is much more eco-friendly and faster.
• Smart Contracts: The technology offered by Ethereum allows for the automation of contracts by placing them on the blockchain. Smart contracts automatically execute the terms of an agreement without the need for an intermediary. This is revolutionary for the fields of finance, law, and insurance.

Obstacles and Challenges

Despite their advantages, cryptocurrencies face several serious problems.

1. Price Volatility: The crypto market is extremely volatile. The prices of Bitcoin or other cryptocurrencies can change drastically in a few days or even hours. This makes them inconvenient as a means of everyday payment or as a stable investment.
2. Lack of Regulation: The governments of many countries still do not have clear regulatory laws for cryptocurrencies. This creates uncertainty, increases the risk of fraud, and makes their integration into the financial system difficult.
3. Environmental Concerns: The mining of Bitcoin and some other cryptocurrencies requires a massive amount of energy, which is a concern from an ecological perspective. Although new blockchain technologies (such as Ethereum's transition to PoS) address this issue, it remains a global challenge.

The Vision for the Future

Experts agree that cryptocurrencies will not replace traditional currencies in the near future, but their impact on the financial world is significant. Here is how the situation could evolve:

• Hybrid Model: It is likely that the future will be a hybrid one, where traditional financial institutions will use blockchain technology to improve their services. For example, banks could use blockchain to speed up international transfers.
• Central Bank Digital Currencies (CBDC): Central banks around the world, including in the US, Europe, and China, are actively studying and developing their own digital currencies. These would be digital like cryptocurrencies but would be regulated by the government. This could be more efficient but would also eliminate the core idea of cryptocurrencies: decentralization.
• The Rise of Stablecoins: To overcome price volatility, stablecoins were created, whose value is pegged to stable assets (for example, the US dollar). They can serve as an efficient means of everyday payments without the risk of price fluctuations.

In conclusion, it can be said that cryptocurrencies will not disappear. They have already begun to change the financial system by challenging traditional models. It is likely that the future will not be the victory of one over the other, but a fusion of traditional and digital finance, where each element will have its place, in favor of a more transparent, efficient, and accessible global financial system.