Abstract

This essay describes the role of cryptocurrencies in the global financial system, their history, their benefits, their drawbacks, and their future. The essay starts with Bitcoin and the history of blockchain technology, following the history of altcoins and decentralized finance (DeFi). The essay describes how cryptocurrencies have facilitated financial inclusion, transparency, and cross-border payments and how huge the potential of cryptocurrencies to replace traditional financial institutions is. It also covers the risks of taking it up, including regulatory risks, market fluctuation, and security risks. The introduction of Central Bank Digital Currencies (CBDCs) is also covered as the government considers whether to adopt or not adopt digital currencies. Cryptocurrency sustainability is set against new technology, regulation, and economic growth. The article concludes in a call to the outraged potential of the cryptocurrencies but in regards to challenges that needed to be met before one could seriously be considering them in the world economy.

Keywords

Cryptocurrencies, Blockchain Technology, Global Financial Systems, Financial Inclusion, Decentralized Finance (Defi), Central Bank Digital Currencies (Cbdcs), Bitcoin, Smart Contracts, Regulatory Challenges, Cryptocurrency Volatility, Investment and Asset Management.

Conclusion

A. Summary of Key Findings:

In this piece, we have argued the evolving function of cryptocurrencies within the global financial system. We have explained how cryptocurrencies have presented new channels of financial inclusion, decentralization, and innovation. We discussed as well the major challenges and dangers of cryptocurrencies, including regulation issues, volatility, security attacks, and sustainability risks. The fate of cryptocurrencies will depend on the way that the challenges are addressed and how technology continues to innovate.

B. Final Thoughts on the Future of Cryptocurrencies:

The potential of the currency to redesign world finance is huge but precarious. With all the progress there has to be a tradeoff between regulation and control, greenness, and safety. Inclusion of the cryptocurrencies in world financial systems, development of the CBDCs, and advancement of blockchain tech will define the future. If the threats are contained and the potential exploited, cryptocurrencies could be at the very heart of deciding world finance's future and introducing new vistas for financial inclusion, economic growth, and a more decentralized global economy.

References

1. Gil-Cordero, E., Cabrera-Sánchez, J. P., & Arrás-Cortés, M. J., Cryptocurrencies as a Financial Tool: Acceptance Factors. Mathematics, 2020, 8(11): 1974. https://doi.org/10.3390/math8111974
2. Grasselli, M. R., & Lipton, A., Cryptocurrencies and the Future of Money. arXiv preprint, 2021. https://arxiv.org/abs/2109.10177
3. Fang, F., Ventre, C., Basios, M., Kanthan, L., Li, L., Martinez-Regoband, D., & Wu, F., Cryptocurrency Trading: A Comprehensive Survey. arXiv preprint, 2020. https://arxiv.org/abs/2003.11352
4. Peters, G. W., Panayi, E., & Chapelle, A., Trends in Crypto-Currencies and Blockchain Technologies: A Monetary Theory and Regulation Perspective. arXiv preprint, 2015. https://arxiv.org/abs/1508.04364
5. Wątorek, M., Kwapień, J., & Drożdż, S., Cryptocurrencies Are Becoming Part of the World Global Financial Market. arXiv preprint, 2023. https://arxiv.org/abs/2303.00495
6. Thampanya, N., Nasir, M. A., & Huynh, T. L. D., Asymmetric Correlation and Hedging Effectiveness of Gold & Cryptocurrencies: From Pre-Industrial to the 4th Industrial Revolution. Technological Forecasting and Social Change, 2020, 159: 120195. https://doi.org/10.1016/j.techfore.2020.120195
7. Zhu, X., Niu, Z., Zhang, H., Huang, J., & Zuo, X., Can Gold and Bitcoin Hedge Against the COVID-19 Related News Sentiment Risk? New Evidence from a NARDL Approach. Resources Policy, 2022, 79: 103098. https://doi.org/10.1016/j.resourpol.2022.103098
8. Conlon, T., & McGee, R., Safe Haven or Risky Hazard? Bitcoin During the COVID-19 Bear Market. Financial Research Letters, 2020, 35: 101607. https://doi.org/10.1016/j.frl.2020.101607
9. Kristoufek, L., Grandpa, Grandpa, Tell Me the One About Bitcoin Being a Safe Haven: New Evidence from the COVID-19 Pandemic. Frontiers in Physics, 2020, 8: 296. https://doi.org/10.3389/fphy.2020.00296
10. Barbu, T. C., Boitan, I. A., & Cepoi, C., Are Cryptocurrencies Safe Havens During the COVID-19 Pandemic? A Threshold Regression Perspective with Pandemic-Related Benchmarks. Economic and Business Review, 2022, 8(1): 22–49. https://doi.org/10.18559/ebr.2022.1.2
11. Grobys, K., When Bitcoin Has the Flu: On Bitcoin’s Performance to Hedge Equity Risk in the Early Wake of the COVID-19 Outbreak. Applied Economics Letters, 2021, 28(10): 860–865. https://doi.org/10.1080/13504851.2020.1810914
12. James, N., Menzies, M., & Chan, J., Changes to the Extreme and Erratic Behaviour of Cryptocurrencies During COVID-19. Physica A: Statistical Mechanics and its Applications, 2021, 565: 125581. https://doi.org/10.1016/j.physa.2020.125581
13. Barbu, T. C., Boitan, I. A., & Cepoi, C., Are Cryptocurrencies Safe Havens During the COVID-19 Pandemic? A Threshold Regression Perspective with Pandemic-Related Benchmarks. Economic and Business Review, 2022, 8(1): 22–49. https://doi.org/10.18559/ebr.2022.1.2