New era for money

July 16, 2021


In response to the proliferation of Bitcoin and other unregulated, untraceable cryptocurrencies, some nations are looking into developing digital versions of their sovereign currencies. They would offer similar functionality and more stability.


As the world moves more and more toward the digital space, many say money also needs to change. Enter digital currencies that are more versatile and functional than fiat currencies via a few clicks and swipes on a smartphone, noted Jon Cunliffe, deputy governor of the Bank of England, to the BBC in June. “Money is changing, and the way we pay for things … is changing fast. Cash is declining, and new technologies make it possible for new forms of money not just from banks, but from tech platforms,” he said.

One of those “new forms of money” is Bitcoin, the world’s first cryptocurrency introduced in 2009. Bitcoin uses blockchain, an innovative technology that prevents fraudulent transactions or theft and allows complete transparency. According to Investopedia, there were more than 4,000 cryptocurrencies as of January. Their usage has nearly tripled since July 2020, according to CoinMarketCap, an online transactions platform.

Governments and central banks don’t regulate cryptocurrencies, so their dollar value is set by supply, demand and sentiment. Tweets from Tesla CEO Elon Musk, Microsoft founder Bill Gates and Berkshire Hathaway’s Warren Buffet over the past year have pushed Bitcoin’s value from $10,000 to $63,346, then down to $33,532 at press time.

Such a financial system poses several potential problems for governments and central banks, including money laundering, transactions that can’t be taxed and, eroding the impact of fiscal and monetary policies. As a result, many central banks are developing competing currencies.

Crypto ecosystem

Blockchain technology underlies all cryptocurrencies. It is a digital ledger that stores all transactions. They can’t be erased, changed, or hacked, and the blockchain “ledger” is stored and visible on all computers using that cryptocurrency. Anyone can develop a blockchain or less complicated “digital ledger,” said Rohas Nagpal, Primechain Technologies’ chief blockchain architect.

The first blockchain application was Bitcoin, which can be used to buy goods or services and exchanged for real-world money via a digital marketplace similar to an e-stock market. Those using it could access their account details by downloading a smartphone app such as Exodus: Crypto Bitcoin Wallet, Trust, Binance and PointPay Bank. In Nigeria, private banks can create cryptocurrency accounts for holders, who can exchange them for real money.

“Printing” those cryptocurrencies is known as “mining,” and Bitcoin is the most difficult to mine, making it the most expensive. Mining one coin requires 1,656 kilowatt-hours (KWh) of electricity, enough to power the average U.S. household for 56 days, according to Digiconomist’s Energy Consumption Index. In June, Cambridge University researchers reported that Bitcoin mining in 2020 required a total of 132.3 terawatt-hours (TWh), more than the electricity used by Argentina, Malaysia or Sweden. “Bitcoin uses more electricity per transaction than any other method known to mankind,” Gates told CNBC in June.

However, mining cryptocurrencies such as Ethereum is less complex, making them inherently cheaper. A single unit consumes 123.39 kWh of electricity, and between July 2020 and 2021, the cryptocurrency used 52.68 TWh, according to Digiconomist’s Energy Consumption Index. Meanwhile, Dogecoin, whose creators intended it to mock the cryptocurrency establishment, uses just under 3.5 KWh to make one unit. “Dogecoin was started as a joke in 2013, a way to poke fun at some of the wild speculations in cryptocurrencies,” wrote Avi Salzman, a senior writer at Barron’s, in May.

Another factor that determines the price of cryptocurrencies is how many can be mined. It is an embedded cap within each of those digital currencies. For example, there can never be more than 21 million Bitcoins. On the other hand, Ethereum has set its mining maximum at 18 million coins a year, while Dogecoin has no cap.

The new development that introduces unprecedented functionality in the crypto world is non-fungible tokens (NFTs), launched in March, making it possible for virtual and real-world documents and images to be uniquely identified in the digital space. IBM and IPwe in April announced they would make, or “mint,” NFTs for patents and intellectual property documents, “making them easier to buy, sell and trade,” according to the press release from IBM, which has developed the blockchain that will host those NFTs.


For better, for worse

Currently, cryptocurrency users fall into two categories: speculators aim to make money from exchanging digital and fiat currencies, betting they can anticipate the changing trend before everyone else. “Without regulations, cryptocurrency is a double-edged sword,” Pavithra Rao, a communication specialist at the United Nations (U.N.), wrote in a U.N. blog. “There may be gains from time to time, but any precipitous crash in price could leave investors with no escape route.” Advised Buffet in 2018: “Stay away from it. It’s a mirage, basically. In terms of cryptocurrencies, generally, I can say almost with certainty that they will come to a bad ending.”

On the other hand, the World Food Programme (WFP) has used cryptocurrency. It launched the Building Blocks pilot in 2016 and ended it in 2018. “WFP is harnessing blockchain technology as an effective means to empower people to meet their essential needs. The [Building Blocks] project has now completed its life cycle with the WFP Innovation Accelerator.”

It used Ethereum cryptocurrency to aid 100,000 Syrian refugees a month throughout the pilot project’s two years in Jordan. “With the help of the Building Blocks blockchain, the WFP has been distributing aid more securely and efficiently to Syrian refugees in Azraq Refugee camp in Jordan,” said the WFP’s project document. “It paved the way to a model aid program.”

According to U.N. estimates, using Ethereum in the Building Blocks project saved $40,000 in bank transfer costs, seeing “tens of millions of [dollars] of aid … delivered through the blockchain.”

Meanwhile, the inclusion of those refugees in the WFP’s blockchain will give them “a permanent digital identity [to help them] apply for and receive aid and facilities,” said the WEP paper.

Cryptocurrency’s growing popularity is apparent as trading volumes increased nearly threefold last year, according to CoinMarketCap. That is fueling growth in mining, which means higher electricity consumption and more carbon emissions. Technavio, a crypto statistics portal, estimates mining activity rose 5.72% in 2020 compared to a year earlier.

Cryptocurrencies’ mining carbon footprint was 90.2 million metric tons of CO2 in 2020, according to Alex de Vries, who created the cryptocurrencies’ Energy Consumption Index. Putting that in context, the International Energy Agency said the global economy in 2020 pumped an additional 75 million metric tons of carbon dioxide into the atmosphere compared to 2019. Without crypto mining, global emissions would have declined last year.

“Bitcoin is created when high-powered computers compete against other machines to solve complex mathematical puzzles, an energy-intensive process that often relies on fossil fuels, particularly coal,” Reuters reported in May. According to the Bitcoin Energy Consumption Index, that cryptocurrency generated 62.82 megatons of carbon dioxide last year, comparable to New Zealand, reported CNBC in February. “That is a stunning amount of electricity. It’s a dirty business. It’s a dirty currency,” Brian Lucey at Trinity College Dublin told the Financial Times in May.

Alternatively, SolarCoin, BitGreen and 14 other cryptocurrencies claim to use clean energy to mine. In addition, less well-known cryptocurrencies use less energy to mine them, and there is not much demand.

Regulating cryptocurrency

Since the creation of Bitcoin, countries have become increasingly divided over cryptocurrencies. In 2018, Egypt’s top Islamic figure, Grand Mufti Shawki Allam, said cryptocurrencies “carried risks of fraudulence, lack of knowledge and cheating,” reported the BBC at the time. “Bitcoin is forbidden in Sharia as it causes harm to individuals, groups and institutions,” Allam added, as reported by Al-Ahram.

The Financial Regulatory Authority has a standing warning that it doesn’t authorize cryptocurrencies or any products that use blockchain.

Egypt is among the nations where cryptocurrencies are illegal. The list includes Bolivia, which banned them in 2014, Iran, Qatar, Algeria, Morocco, Bangladesh, and Nepal. Meanwhile, Canada, Colombia, Ecuador, Russia, Saudi Arabia, Jordan, Taiwan, Cambodia, Indonesia, and Vietnam, have restrictions on cryptocurrencies, but holding and mining them is legal.

In February, Nigeria’s central bank reversed its conditional-approval stance to ban cryptocurrency transactions, ordering the closure of all accounts. That came after saying in September that it planned to regulate its use.

In May, China banned nearly all crypto mining. Statistica noted the country accounts for 65% of global cryptocurrency mining. “Recently, cryptocurrency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order,” the Chinese authorities said in May.

In the same month, India banned trading such currencies, but not the underlying technology. “From our side, we are very clear that we are not shutting all options,” India’s Finance Minister Nirmala Sitharaman told the press. “We will allow certain windows for people to do experiments on blockchain, bitcoins, or cryptocurrency.”

Most countries have no restrictions on cryptocurrency, with El Salvador saying it will make it an official currency this year. “It will bring financial inclusion, investment, tourism, innovation and economic development,” President Nayib Bukele wrote in a tweet in July 2020.

His decision came as the government is negotiating a second bailout from the IMF after securing $389 million in emergency aid in April 2020, which didn’t sit well with IMF officials. “Adoption of Bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis,” said Gerry Rice, an IMF spokesman, in June.

Joining the club  

As more economies continue their digital transformation, they will require the versatility and increased functionality that cryptocurrencies offer without their volatility. That has led many governments to consider issuing digital versions of their paper currencies. That category of money is called Central Bank Digital Currencies (CBDCs) or Govcoins, as The Economist called them in June. “These digital currencies respond to the interest [rates] of central banks to stay updated to guarantee fulfillment of their objectives and functions,” economist Natalia Español of Banco Bilbao Vizcaya Argentaria, a Spanish multinational financial services company. “Many central banks are investigating the impact of a CBDC issuance on the financial system, while others have opted for its issuance and are in the development phase.”

In December 2019, the Securities Commission of the Bahamas announced the world’s first-ever blockchain digital currency (Sand Dollar) backed by a central bank. By October, it was tradable. In November, Cambodia’s central bank launched the Bakong, the digital version of the riel. Individuals and companies can exchange Bakongs for dollars or riels, which are pegged to dollars.

China will likely be the third country to launch a digital version of its currency nationwide. The e-yuan is a pilot project with 500,000 users in four cities circulating the equivalent of $30.7 million. Foreign businesses accepting the new currency in China include Starbucks, McDonald’s and Subway.

The country’s global economic clout has raised concerns within the Bank of International Settlements that the e-yuan could be widely adopted by smaller Asian countries trading heavily with the world’s second-largest economy. “China wants to have more political influence internationally,” Edwin Lai, professor of economics at the Hong Kong University of Science and Technology, told the South China Morning Post in June. “One way to achieve this is if other people use your currency more as a medium of exchange, for a store of value and as a reserve currency.”

Meanwhile, the EU and U.S. governments also have expressed interest in launching digital versions of their currencies. “The ECB [European Central Bank] is proceeding with caution and it is believed the first studies and tests could be carried out in mid-2021,” noted an October report by the ECB. In August, Lael Brainard, a member of the U.S. Federal Reserve Board of Governors, said the central bank was studying the potential consequences of creating a digital version of the dollar.

According to PricewaterhouseCoopers (PwC) Global CBDC Index 2021, over 60 central banks have been “exploring CBDCs since 2014, with progress accelerating as some CBDCs are now entering implementation phases,” noted the report.

Crypto Africa

Africa has been quick to adopt some of the world’s latest technologies to solve incumbent problems. A McKinsey study said over half of the 282 mobile money transfer service providers worldwide are in Sub-Saharan Africa. Meanwhile, the IMF compared the penetration of banked citizens and those with mobile money accounts in 13 African nations and found that “today, it is not uncommon for more citizens to have access to mobile money than to a traditional bank account.”

Experts believe that cryptocurrency could be as popular. “Interest in cryptocurrency … is growing steadily in Africa,” wrote Rao of the U.N. “Some economists say it is a disruptive innovation that will blossom on the continent.”

One reason is those countries’ reliance on remittances, which take time to transfer via intermediaries such as Western Union and are costly. The World Bank said the average cost of moving fiat money to Africa was the highest globally at 8.2% of total transferred amounts. The global average is 6.5%. “For Africans in the diaspora sending money back home, the cost of bank transfers is astronomical,” Emmanuel Darko, a marketer at Cypheme, a digital security company, told DW in June. “It’s sometimes as high as 20%. But there are some cryptocurrencies that allow [people to] practically send money back to Africa for free.”

The other primary reason cryptocurrency usage is rising in Africa is inflation and lack of confidence in governments. “Now you have this alternative to traditional government-managed currencies where there’s historically been so many [policy] errors and negative side effects,” Chris Becker, blockchain technologies lead at South Africa’s Investec, told DW in June. “These competing currencies are operating alongside domestic currencies, which I think will give these economies an increased level of resilience.”

The third driver of cryptocurrencies in Africa is the large number of unique active mobile phone subscribers, which has reached 735 million, according to GSM Associations. “That means more Africans will have the tools to plug into the cryptocurrency ecosystem,” said Rao of the U.N.

African nations benefiting from cryptocurrencies include Botswana, Ghana, Kenya, Nigeria, South Africa and Zimbabwe. They mostly use Bitcoin, according to, a news portal. According to Darko, Africans prefer using digital currencies “as opposed to their local currencies, which are plagued with hyperinflation,” he told DW. In addition, Malawi, Morocco, South Africa and Zimbabwe are witnessing a boom in cryptocurrency-based remittance service providers, DW reported.

The broad adoption of cryptocurrencies in Africa faces some obstacles, such as unexpected government crackdowns. The South African Reserve Bank published a policy paper in April highlighting the importance of regulating cryptocurrencies. Said Rao: “Government guidelines could become a slippery slope to regulation.”

The other big problem is low demand due partly to a lack of understanding about how cryptocurrencies work. “Cryptocurrency and blockchain are easier to understand by people who are already educated and exposed to technology,” said Elisha Akyaw, founder of BlockNewsAfrica, to Downtown Africa, a news portal, in October. UNESCO says one in five Africans aged 6 to 11 is not in school, followed by a third of those 12 to 14 and 60% aged 15 to 17.

More tools to come

NFTs appeared in 2021, offering a new way to prove ownership of assets in the digital world. That has created new business opportunities and ecosystems, such as trading physical items, including works of art, in the virtual world.

It uses the same blockchain technology as cryptocurrencies. However, their different nature requires the “smart contracts” functionality present in Ethereum and other less popular cryptocurrencies.

A “smart contract” is a program that allows developers to build applications that take advantage of the Ethereum blockchain’s security, reliability and accessibility. “Smart contracts expand on the basic idea behind Bitcoin — sending and receiving money without a trusted intermediary like a bank in the middle — to make it possible to securely automate and decentralize virtually any kind of deal or transaction, no matter how complex,” according to Coinbase, a cryptocurrency trading platform.

Some of those “complex” transactions include uniswap, where cryptocurrency holders exchange one digital currency for another, setting the exchange rate between them based on real-time supply and demand. Another type of smart contract manages lending, interest rates and payment of installments. A third allows the creation of cryptocurrencies pegged to the value of the dollar, known as “stablecoins.” Innovators could even develop a new type of “smart contract” that combines those types, thereby becoming a crypto-bank regulated by the blockchain.

However, one must be careful when using “smart contracts” as “once deployed onto a blockchain, [they] generally can’t be altered, even by their creators,” noted Coinbase.

The seemingly unhinged rise in cryptocurrencies, other blockchain tools, and their acceptance among laypeople puts governments and financial institutions under pressure. “Governments and financial firms need to prepare for a long-term shift in how money works, as [digital currencies are] momentous as the leap to metallic coins or payment cards,” wrote The Economist in June. “That means beefing up privacy laws, [and] reforming how central banks are run.”