With the advent of digitalization and the growth of the internet, the dynamics of the financial sector have changed at a rapid rate. We have all heard about the terms such as Digital Currencies, Bitcoin, Cryptocurrency, and so on, but have you ever wondered if these digital currencies are impacting our everyday life How and Why? You might be wondering it! Worry not, In today’s article we have bought answers to all your questions related to Digital Currencies.
The Growing Impact of Digital Currencies on the Financial Sector is a fascinating concept that has been gaining traction in recent years. Digital currencies such as Bitcoin and Ethereum have been gaining attention as the potential to disrupt the traditional financial system increases. This impact of digital currency is seen to be growing every going day.
As much technology gets matured with time so does this industry, more and more people are getting enlightened and aware of its potential. It has helped to reduce costs that used to be with international payments and most of all people who are residing in developing have seen one of the major positive impacts of digital transactions in general. Digital currencies have become a viable alternative to traditional payment methods and transactions. Although digital payment methods are cost-effective, secure, and time savvy there are various risks associated with them as well.
Digital Currency: What is it?
Unlike, traditional currency digital currency is the digital form of money that is used to carry out any transactions and exchange of money. The biggest problem with digital currency is that it is not overlooked by any government or regulatory authority or even by any banks. The whole network of digital currency relies on a decentralized network of computers and provides users with a secure and anonymous way to store and transfer funds. These networks are built on Peer- to- Peer network models, which means these networks are not controlled or issued by any central authority like a government or banks neither they are controlled nor monitioritedred by them as well. But how are they managed you would be wondering? The answer is these digital currencies are simply created and managed through a series of computer processes that rely on cryptography and blockchain technology. Digital currencies are also known as cryptocurrencies, as they rely on cryptography to secure and verify transactions.
You can use digital currency as same as you use the traditional currency. Yes, you read it right. From transferring money, doing shopping, purchasing goods and services, and generating profits through investment, you can use it anywhere. The digital currency gained popularity when it came into the common domain and people started to use it to purchase goods and services online. Being fast, secure, and cost-effective, these are anonymous as well. These features bought a boom in the financial sector and people started to do transactions with these currencies. From here it began to be used as a currency to buy and purchase goods and services as well by many people around the world.
Digital Currencies and their Benefits:
Digital currencies have many of the given benefits which have helped this technology to gain big success and popularity in a very short span of time. Some of the benefits of digital currency are given below-
1. Low Transaction Fees: The biggest advantage of using a digital currency is you are exempted from paying heavy transaction fees. Transaction fees are lower than traditional payment methods when it comes to digital currency. This makes it a priority and suitable option for merchants, free; lancers, and everyone who is involved in paying internationally.
2. Increased Security: Strong encryption codes and secure networks are used by digital transaction platforms to make sure to protect user funds. This makes them a much safer option than traditional payment methods, which are vulnerable to fraud and identity theft.
3. Faster Transactions: Digital currencies offer fast payment options as compared to traditional methods and as the fact is well known, every payment that you want to do or receive is just a click away. This makes them an attractive option for merchants who need to process payments quickly and efficiently.
4. Increased Privacy: This makes them a good option for people who want to keep their financial transactions private. So don’t worry about privacy when it comes to digital currency. Your identity will be anonymous.
5. Decentralization: Not being controlled by any government or central bank and being operated totally on a decentralized network, the value of digital currencies is not affected by economic or political events happening around the world. This gives the consumers and users of digital currency a greater degree of control over their funds.
6. No Inflation Risk: Unlike traditional currencies, there is no risk of inflation with digital currencies. This also makes the digital currency a greater option when it comes to long-term investments.
7. Easy Accessibility and Borderless Money: For people who do not have access to traditional banking services, if they have an internet connection they can easily access digital currency. Also, digital currency can be used to make payments to anyone in the world. The geographical location will never be a hassle when it comes to digital currency.
8. Growth Potential: With the advent of digitalization and access to the internet, digital money and currencies surely have a long way to go, Making it a great option for investors who want to get in early on new technologies.
Digital Currencies and their Impact on the Finance Sector:
Revolutionizing the World: Digital currencies have also opened up new opportunities for banks to offer innovative services to customers, such as real-time payments and micro-payments. This payment system has also made it possible to bring a revolution around the world in the financial industry, also it will be a change maker for financial institutions and their managements as well. With the use of blockchain technology, banks, and other financial institutions can create digital ledgers to track and store financial transactions. This technology will help the financial sector to reduce the time and money that banks spend on manual processes, and protection of its consumers from fraud and other security issues as well.
Online Payments: In recent years, Digital currency payment has become the first choice for merchants and vendors to buy and sell goods and services from one corner of the world to another. Many businesses around the world are now accepting payments in Bitcoin and other digital currencies as well. The biggest reason behind this acceptance is the Reduced cost of International Payments, digital currency transactions are much cheaper than traditional currency transactions, and it saves the customers or merchants, and vendors time and money from being wasted in the exchange rates or any other complications.
Traditional Finance Sector will be disrupted: The need for intermediaries is almost finished if digital currencies will be used on a large scale and within the common public, Digital currency will allow a more peer-to-peer approach to money transfers which will bring up lower transaction fees for customers making the transfer process more efficient. Also, no exchange rates or currency value will affect the digital currency as well, which will make it easier for two people sitting in two different corners of the world, to pass on the money and receive it.
Challenges for Digital Currencies:
Every coin has two faces, and the same goes for digital currency. It has positives but it comes up with negatives too. It’s a well-known fact that there is no regulator or vigilant authority to keep a check on digital currencies around the world, and this presents a big challenge in front of society. Although digital currencies have been able to revolutionize the world they also have been able to challenge society, governments, and financial institutions. The value of the digital is not fixed as well and it can possess a major challenge to the real financial world.
The use of digital currency is very volatile, and this volatility can lead to losses for users who are not careful with their investments. Protecting consumers from fraud and phishing instances is another major challenge that is seen by the digital currency industry. There are many instances and complaints registered by various governments that digital wallets have been hacked or stolen by hackers. Not just this, there are many instances where the person was even exploited badly just because of owning a digital wallet. This lack of oversight possesses a major threat to traditional governments and financial institutions. Also, it collectively increases the risk of fraud, money laundering, and other illegal activities.
Conclusion:
Digital currencies can be seen as having a big impact on the financial sector all around the world and it is undeniable. With the passage of time and the growth of Internet networks from 4G to 5 g, It is estimated more and more people will be using digital currencies, Many of the economics sector intellectuals have said digital currency will become the need of the hour in upcoming future. Digital currencies come up with the ability to reduce transaction costs, make the payment system more transparent and secure, also it increases liquidity.
Digital currencies have also enabled businesses to access new markets, also it helps businesses to target their potential customers easily and increase their reach as well and all of it is available without paying any extra or expensive costs. These benefits have made them popularised in the financial industry in a more speedy way than it was expected. As adoption of the digital currency will increase, the financial sector is likely to experience further disruption and the emergence of new financial products as well in significant years.
