Cryptocurrencies, Digital Dollars, and the Future of Money

Since the creation of Bitcoin in 2009, cryptocurrencies have exploded in popularity and are today collectively worth over $1 trillion.

Critics say a lack of regulation has contributed to volatility in the nascent industry. In 2022, several cryptocurrencies and crypto firms collapsed, including industry heavyweight FTX, causing trillions of dollars in losses.

Introduction

In the span of a few years, cryptocurrencies have grown from digital novelties to trillion-dollar technologies with the potential to disrupt the global financial system. Bitcoin and hundreds of other cryptocurrencies are increasingly held as investments and used as currencies to buy a swath of goods and services, such as software, digital real estate, and illegal drugs.

To their proponents, cryptocurrencies are a democratizing force, wresting the power of money creation and control from central banks and Wall Street. Critics, however, say that a lack of regulation for cryptocurrencies empowers criminal groups, terrorist organizations, and rogue states, while the assets themselves stoke inequality, suffer from drastic market volatility, and consume vast amounts of electricity. Regulations vary considerably around the world, with some governments embracing cryptocurrencies and others banning or limiting their use. As of February 2023, 114 countries, including the United States, are considering introducing their own central bank digital currencies (CBDCs) to compete with the cryptocurrency boom.

What are cryptocurrencies?

So called for their use of cryptography principles to mint virtual coins, cryptocurrencies are typically exchanged on decentralized computer networks between people with virtual wallets. Bitcoin, created in 2009 by the pseudonymous software engineer Satoshi Nakamoto, is by far the most prominent cryptocurrency, and its market capitalization has peaked at over $1 trillion. Numerous others, including Ethereum, the second-most popular, have proliferated in recent years.