Answer:

The nature of money changed after the Bretton Woods Conference in 1944, when most countries tied the value of their currencies to the US dollar, rather than to gold or silver. When the US went off the gold standard in 1971, all currencies essential became fiat moneys, with their value derived from the governments that issue them rather than from commodities. Thus, global financial system is decided by small group of bankers and this gives enormous control to central banks over economic activity. Therefore, many people object to the concept of fiat money.

In this context, innovating the concept of money through a digital currency which is more decentralized and democratic has been a recurring theme in technology circles. This can be understood for the following:

♤ Low transaction fee:

o The core innovation is that digital currency uses consensus in a massive peer- to-peer network to verify transactions. Thus, there is vast potential in using digital currency as a medium of exchange at a much lower cost than Visa and Mastercard.

o It also transacts business instantaneously, so there is no “float” (i.e. the bank can’t keep money in limbo while it earns interest on it) and because processing is automated, fees can be lowered substantially.

♤ No central authority: The supply of Bitcoin is capped. So no one can create unlimited Bitcoins. There’s no Federal Reserve or other central bank that can intervene.

♤ Impervious to attack: Digital currencies have a widely distributed ledger, so it’s

much more impervious to attack than a centralized institution like a bank.

However, there are issues with digital currency. For example,

♤ Volatility of currency: Bitcoin’s, the most famous digital currency, popularity led to a massive speculative bubble, rising in value to almost $1000 and then crashing down to under $400.

♤ There are apprehensions that digital currency can be used to finance illegal activities due to anonymity of the transaction.

Thus, there is much uncertainty associated with Digital currencies. Many think that this may be the future of world economy while others are afraid that it can destroy economies. However, if digital currency works and people starts trusting it to work without the middlemen i.e. central authorities, the way world’s economy functions could be transformed for better.