As the COVID-19 Pandemic Dies Down, Comes a New Virtual Currency Economy Age
I. Impacts of the global pandemic
Since the lockdown of Wuhan, China on January 23rd, the global pandemic has spiraled out of control, with economic impacts greater than both SARS (2003) and the financial crisis (2008), perhaps even surpassing the Great Depression in the 1930s. The Chicago Board Options Exchange’s Volatility Index (VIX) rose on March 16th to a historical high of 82.69; the 2020 Tokyo Olympics has been postponed; the American stock market circuit breakers were triggered three times in March alone; Federal Reserve has rapidly cut down its interest rate to zero; U.S. government has proposed a 2.3 trillion coronavirus relief package; China and the EU are spending 3 trillion RMB and 2.2 trillion dollars, respectively, on relief; and the price of West Texas Intermediate (WTI) went down to a shocking and record-breaking low of -37.63 USD per barrel.
Currently, there are over 4 million confirmed cases and 280 thousand deaths related to COVID-19. The United States’ unemployment rate in April is approaching 15%, with a new high of 25% likely to reach in the coming months. The International Monetary Fund (IMF) released a report on April 14th predicting that the global GDP growth of 2020 will go from +3.3% to a new low of -3%. China, which was the first to announce its GDP growth rate in the first quarter, saw a record low of -6.8%.
The impact of this pandemic is global and comprehensive. Besides its apparent effect on the economy, politics, and the job market, there are also less obvious effects on psychology, culture, and social interaction. In other words, the post-pandemic human economic behavior, consumption, form of exchange, and even living attitude is about to enter a new age.
II. Blockchain and Virtual Currencies
Ever since Satoshi Nakamoto published his groundbreaking work “Bitcoin: A Peer-to-Peer Electronic Cash System” in October 2008, blockchain has received much attention due to its features and advantages such as its decentralization, immutability, distributed ledger technology, etc. Blockchain has even been called “the fourth industrial revolution”, following the steam engine, electricity, and the Internet.
Blockchain is a type of chain of trust or network of value built on the Internet; it can also be considered Internet 2.0. In the past, the Internet can only be used to send data and information, while blockchains can directly transfer money and assets.
In the future, blockchain will be used to perform all the major applications of our current Internet, in addition to providing a solution to data flow and monetary flow. Current major applications are as follows:
“Blockchain 1.0” is used for crypto currencies related applications; “Blockchain 2.0” is used for financial smart contracts concerning supply chain financing, loans, salaries, cross-border remittance, etc.; “Blockchain 3.0”, however, will have limitless potential. Aside from finance, it will also be used extensively in social and daily applications such as notarization, arbitration, medical insurance, voting, and others. In the future, blockchain can be even combined with the Internet of Things (IoT) and AI technology to engage the complete integration of data and monetary flow, thereby achieving practical implementation of the AIoT age.
It is also foreseen that most of our assets will be “tokenized” since the implementations of blockchain are built on the foundation of decentralization, with only private key owners having the right of use and ownership of their assets. Therefore, the safe storage of private keys and the ease of transaction will be key to implementing a virtual currency economy.
III. The Rise of Virtual Currencies
There are no agreed-upon definitions for virtual currency, but the common definition is as follows: aside from various cryptocurrencies, tokens such as internet currencies and converted assets like bonuses and points can also be considered virtual currencies. Wikipedia’s definition of virtual currency states that virtual currency is “digital currency……used and accepted among the members of a specific virtual community.” It serves the monetary function of being the “medium of exchange” and “unit of account”.
Cryptocurrencies such as Bitcoin or Ether are cases of “fully decentralized virtual currency.” However The Central Bank Digital Currency (CBDC) is a legally recognized, stable form of “limited decentralized virtual currency” being developed by various central banks, which mainly relies on blockchain platform technology.
Facebook announced its virtual currency, Libra, last year, but its early stage plan incurred fierce criticism and concerns about its challenging the monetary sovereignty of various nations. Having difficulties passing the regulations of various countries, Libra has yet to be implemented. Nevertheless, the global trend of using cryptocurrencies keeps prevailing and seems unstoppable. That explains to avoid the unpredictable impact of cross-border and cross-sovereignty on national economies and monetary sovereignties, many central banks of the countries are now spontaneously considering issuing nation-owned cryptocurrencies that can be easily monitored and supervised.
The newest study from the Bank for International Settlements (BIS) shows that out of the 66 central banks around the world, 80% are developing their national digital currency. China is the first to announce that it will begin to implement its Digital Currency Electronic Payment (DCEP) in Shenzhen, Suzhou, Chengdu, and Xiong’an New Area starting from May this year. The European Central Bank, as well as the central banks of various countries such as Japan, Sweden, Switzerland, Canada, the UK, and France, are also planning to launch their national digital currency. Furthermore, Taiwan has also proclaimed that it will be implementing a trial run in the latter half of this year.
On April 16th, Facebook again announced the Libra 2.0, an adjusted version that aligns more with the monetary supervisory regulations of various countries. Libra 2.0 is expected to be put to official use in the latter half of this year after acquiring approval from various supervisory departments. Out of the 8 billion people on earth today, only 50 million people are virtual currency holders. Facebook has over 2 billion users worldwide, and Libra is expected to have at least 500 million users, thereby causing the global population of virtual currency users to grow tenfold. In addition, the quadrennial Bitcoin Halving will arrive soon on May 11th and is expected to trigger the value of bitcoin to rise like the two previous Halvings. This will attract more users and bring about a new wave of enthusiasm for virtual currencies and cryptocurrencies.
IV. The Worst of Times and The Best of Times
The circulation of paper bills requires high anti-counterfeit and management measures. With internet economies seeing significant development in the 21st century, it is only a matter of time before paper bills become obsolete. Due to the risk of spreading viral infection through paper bills, it is rumored that the central bank of a certain country is recalling its paper bills and using UVC to disinfect its paper bills before putting them back into circulation. How tedious and inconvenient! In a time of lockdowns and quarantines, allowing people who do not have bank accounts to purchase goods without having to resolve to direct contact is of utmost priority. A study from the Bank for International Settlements (BIS) reported on April 3rd that such needs and changes in forms of exchange will accelerate the implementation of national digital currencies by central banks across the world.
Currencies are the basis of human economic activity which develops and changes with time. From bartering in the Neolithic to the shells and metal coins of the agricultural age, to the paper bills of the industrial age to the paper and electronic currencies of the Internet age, the transformation towards virtual currencies in the future blockchain age is inevitable.
A practical currency must have three major functions: 1) unit of account, 2) storage of value, and 3) medium of exchange. Since the end of 2008, cryptocurrencies have yet to be widely implemented due to their inability to serve as a medium of exchange and their wild fluctuation. For this reason, cryptocurrencies are unable to lead the global economy towards a virtual currency economy era. Starting from the end of 2020, Libra 2.0 and national digital currencies implemented by central banks all over the world will bring about a large-scale implementation of a medium of exchange. This way, virtual currencies will become practical and drive next-gen economic activities.
With the impact of the pandemic affecting global economic activities, countries all over the world have isolated themselves, causing a global recession. Whereas, historically speaking, every major crisis has been followed by limited destruction of the old system, in turn leading to the reconstruction and innovation that leads to the key of growth for a new era.
“At the end of the river, we may see the rise of clouds”; as the pandemic dies down, a new virtual currency-based economy age might be upon us…
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