The effect of cryptocurrencies on commodities

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Cryptal global

20 min readAug 31, 2022

Many believe digital currencies will take over global markets in the future, and they are expected to be a suitable replacement for physical money or traditional currencies in the current economic climate. Global markets are now increasingly feeling the need to include basic cryptocurrencies in economic exchange, considering that these currencies are created only by zero- and one-sided cryptography.

The production and transfer of these currencies are handled through an online database called blockchain, and they are secure, fast, and low cost due to their high speed and low transfer cost. It has a high exchange value in world trade all over the world.

The global market has not been persuaded and is hesitant to accept and invest in digital currencies because of their decentralized control system, which no organization almost entirely controls. In spite of the market's eagerness to accept it, the unclear and fear-inducing nature of the product has raised the risk of its acceptance by official institutions. Undoubtedly, the future of the global market is one of those basic cryptocurrencies, and in some cases, it can be a solution to the issue of unfair sanctions in global trade.

Among the few phenomena that are as old as human history, money is one of the oldest. Historically, the concept of money can be traced back to when the first humans touched the lap of nature to meet their basic needs. Value and exchange developed as people learned about the concept of accumulation and the comparative advantage neighboring human groups had in stored goods.

Money originated with barter exchanges. Commodity money, metal money, paper money as well as written money were the main forms of money that evolved in the following periods, according to their specific advantages and disadvantages.

Electronic money and cards are among the latest forms of money used to satisfy the desire to exchange value with the least time and cost and the highest degree of reliability. Therefore, at first, commodity-to-commodity trade was a popular form of buying and selling, but gradually monetary units overtook this type of trade.

In addition to facilitating the buying and selling process, currency units also provide the possibility of equalizing buying and selling around the world. However, there are several obstacles in their way, such as the risk of theft, variable supports such as gold and silver, governments and organizations, and additional fees for the transfer.

As defined by the European Central Bank, virtual currency is an unregulated form of digital money controlled by its developers, accepted by members of a particular virtual community, and used by them. No central service providers or financial institutions are in charge of virtual money transfers because the peer-to-peer exchange does everything.

This nature is a phenomenon that governments cannot manipulate, and banks cannot increase or decrease its value. The need for digital money started when Internet activities became economically valuable. To participate in their activities or receive their services, compensation had to be paid, while these activities did not have a real and emerging aspect in the real world.

In general, business in the current era has crossed borders and entered the global arena. In the meantime, many intermediaries, including international institutions, have increased the difficulties in conducting global transactions. For this reason, virtual money or digital currencies have been created.

It was done to shorten the hands of the intermediaries in the meantime and facilitate monetary and commercial relations.

In recent years, new currencies have been introduced to the world based on the network and the internet, called digital currencies, including the most famous of them, Bitcoin, which, in addition to the absence of the problems of common currencies, has other advantages such as the elimination of intermediaries, the elimination of taxation, security, and Control is transparency.

This money is international and is not supported by any bank. Its security structure is such that the person paying it remains anonymous. Bitcoin uses a peer-to-peer network structure in which each computer acts as a server. The value of Bitcoin was very low in the beginning, but as its popularity increased worldwide, its value also increased daily.

The concept of cryptocurrency

Digital currency (cryptocurrency) is an electronic form of money that is encrypted on the internet from one person to another. Cryptocurrencies are unhackable. Encrypted digital currencies are money created using information encryption software that can be used for payment as money in a network of users.

This method is a solution to increase the level of security as well as manage the problems and obstacles that previously prevented the success of conventional digital currencies (without encryption).

Digital currency is defined as a monetary unit or medium of exchange (separate from physical intermediaries such as banknotes or coins) based on the internet, which has the same characteristics as physical money. Still, it performs capital transfer transactions instantly and without borders between people.

Digital currencies use decentralized technology, allowing users to make secure payments and store money without registering or using banks and intermediary organizations. Most cryptocurrencies run on a distributed database called the blockchain. A process called mining produces the most basic units of digital currency (except tokens).

Every country has its official unit of money or currency; for example, most European countries use the Euro, the currency of Russia is the ruble, and the United States is the US dollar, and banks or foreign exchanges use a specific currency to transfer to the accounts of individuals and companies.

For several years now, digital currency, which is a form of electronic money, has been introduced in front of these official currencies of each country, which uses cryptography for transmission on the internet. Due to its electronic form, virtual money does not have current money costs (such as taxes, service fees, printing and maintenance costs, etc.), and its use in the modern world is easier and more flexible.

In addition, accounts of users of virtual money are generally free and can be unrelated to the real personality of people, and some users of the virtual world prefer to use these digital currencies in the virtual world and even spread their use to the real world.

There are differences between ordinary money and digital currency, such as that ordinary money or official currencies (such as Rials, Dollars, or Euros) are issued by each country's central bank.

The central bank must have some valuable object (such as gold) as the backing of this issued money. However, digital currency is not like this; most of them are published without physical support. Of course, there are exceptions. For example, the "OneGram" digital currency, which was released by an Emirate startup and complied with the laws of Islamic Sharia, is backed by gold.

The second difference between ordinary money and digital currency is related to their transaction structure. An intermediary (usually a bank) oversees online transactions between two people.

However, the digital currency transfer between two people takes place on a peer-to-peer basis. Instead of a central intermediary institution (such as a bank), the correctness of a transaction in digital currency is confirmed by a network of users who are present on the blockchain network.

Irreversibility of digital currency transactions is the third difference. In normal mode and online purchases, in case of a problem or objection of the payer, it is possible to follow up and cancel the transaction. Nevertheless, the transaction in digital currencies is not like this; if done, it will not be returnable.

User identity preservation is the next difference. The user's identity is verified in normal online transactions, but the user's identity remains protected in digital currencies. Of course, from time to time, news about the possibility of identifying the identity of users is also published in this space. In addition, the fees for digital currency transactions are lower than usual or sometimes even zero.

Digital currencies are currencies that are stored and transferred electronically. Any money that is based on zero and one is included in this definition. For example, the Dollars in the bank account represent real Dollars that are kept somewhere; they are included in the definition of digital currency. Digital money is money that is used electronically to exchange goods and services.

As the world's first digital currency, Bitcoin allows users to make online payments on various websites. Paying with Bitcoin is much easier than paying with a bank card. Bitcoin's architecture is designed so that, compared to other payment systems, transaction costs for consumers and merchants are lower, and people's privacy is preserved more.

When Bitcoin appeared in the world markets for the first time in 2009, its value was less than one dollar, but in the past months, it even reached the border of 20,000 dollars. Bitcoin technology, which is a cryptocurrency, allows users to make financial transactions without the need for any bank, and the identity of the parties to the transaction remains anonymous.

The point that should be kept in mind is that Bitcoin is only a special type of digital cryptocurrency, and this is when people and users are more familiar with Bitcoin and should know that these currencies are of different types and categories. They have a variety of the most famous digital currencies, in addition to Bitcoin, Ethereum, Ripple, Litecoin, etc.

· Bitcoin is the first and most popular digital currency. An unknown person named Satoshi Nakamoto introduced Bitcoin in 2009. The total market value of Bitcoin is now more than 70 billion dollars. It should be said that cryptographic digital currencies are based on Blockchain technology, which plays the role of a database for digital transactions' encryption, registration, and security.

· Ethereum is a cryptocurrency that was released in 2013 by Vitalik Buterin and was quickly welcomed by active users in cyberspace and the internet. It was developed in 2015. Ethereum has its blockchain, which is why it is called the second blockchain. It is also said Ethereum is not just a payment method. Decentralized smart contracts run on the Ethereum blockchain. More than 90% of existing tokens operate on the Ethereum platform, which allows users to run independent distributed software easily and with full security and ease.

· Ripple is another popular decentralized platform. Ripple was launched in 2012 to create high transaction capacity. Unlike cryptocurrencies, Rachel does not use Bitcoin to reach consensus across the entire network for transactions. Instead, it uses an iterative consensus process faster than Bitcoin but leaves it vulnerable to hacker attacks.

· Litecoin. Charles Lee on GitHub introduced this currency in 2011 with changes in Bitcoin, such as faster transactions and easier mining. This currency uses the peer-to-peer or P2P transfer network and uses complex mathematical equations to increase security and ensure transactions. This virtual currency has a lower value than Bitcoin, in such a way that analysts believe that Litecoin compared to Bitcoin is as if silver compared to gold.

· Dogecoin, this virtual money, by using the peer-to-peer (P2P) system, allows users on the internet to send their desired payment amounts online and have a secure payment.

· DashCoin. This particular type of virtual currency is also based on blockchain, which uses a peer-to-peer (P2P) network. DashCoin is the first completely private decentralized network that allows users to access all their activity history and inventory with the ability to send privately and perform their transactions in a completely safe and fast environment.

· Zcash. This cryptocurrency is also based on blockchain, with the difference that all information related to transactions is completely encrypted and hidden. According to experts active in this field, if we consider Bitcoin as HTTP, then Zcash will be the secured term of HTTPS.

Advantages of digital currency

Investors who are interested in these currencies may want to get information about the benefits of these assets. The advantages of digital money and its impact on the economy and business cycle have attracted a lot of attention, and its most important advantages can be summarized in the following:

· A direct person-to-person transfer without intermediaries. "Cryptocurrency," or "digital currency," so to speak, has an encrypted and decentralized payment method, which means that the system of transferring money from one person to another person or company, without the need for banks and similar intermediaries and paying fees and in the result is a lower cost. No central bank or government issues or controls these currencies; rather, they are controlled and secured by their users.

· Ease of account opening, money storage, and transfer process. Digital currencies provide the possibility to carry out the transfer process from anywhere in the world and at any time. The transfer of funds is done simultaneously with the operation, without additional payments.

· Being inclusive in the world and not limited to a specific country. Although many people do not know about these currencies because they are new, the acceptance of these currencies in the world is increasing, so is not limited to a specific country.

· Transparency. The transparency of transactions with virtual currencies is a feature that has made each account monitor its equations and the entire supply of virtual exchanges in these exchanges.

· Quick transfer of money to other people's accounts. The speed of money transfer is low for network members in the traditional paper money system. Counting money by hand or even by machine requires more time than an online payment system. In addition, the possibility of error is also higher in the traditional system.

· Account security. In the traditional banking system, due to the mechanical nature of the system or its manual nature, only the bankers have access to the customers' accounts; in the new electronic banking system, people can withdraw from their accounts by obtaining their password or attack the accounts of individuals or discredit them. One of the advantages of electronic money is that the buyer remains anonymous (which can be considered both an advantage and a disadvantage).

· Ease of payment. It is possible to instantly send and receive any amount of Bitcoin without the time and place restrictions.

· Very small fees. Bitcoin payment processing is done with no or very little fees. Users can pay a fee to process their transactions faster; because of this, they will receive transaction confirmation faster from the network. Typically, the credit card processor charges a fee of between two and three percent, while the fee for using Bitcoin is zero to two percent.

Disadvantages of digital currency

Digital currencies have existed in the world for more than 10 years, but many companies still prefer bank cards and paper money. This is because there is not enough trust in these currencies since most people (rightly or wrongly) believe that digital currencies can be a platform for illegal activities.

· Acceptance rate. Due to the new and emerging nature of these currencies, many people still do not know about them, but it is expected that the number of people and companies using these currencies will increase day by day.

· Fluctuations in the value of virtual currencies. The total value of virtual transactions in circulation is still low, which has made small transactions still affect the price of these currencies in the market. Due to the high fluctuations in the value of these currencies due to changes in the demand rate, investing in these currencies is a big risk that can lead to you becoming rich or bankrupt.

· The need to develop software. Virtual transactions are still growing and reaching maturity. Although the mechanism of these transactions is based on mathematical and computer principles, there is still room for improvement and adding options.

· Not reversible. After the transfer of money, there is no way to get it back. As easy as it is to store and transfer these currencies, it is also easy to lose them, which can be considered both an advantage and a disadvantage.

· Technical complexity and general popularity. Due to technical complexities, understanding this type of money is not easily possible for the public. For this reason, it has not yet gained public favor, and even other internet services are still not reliable for many. Perhaps it is because of this characteristic and ambiguity of the origin of this invention that experts still do not rule out the possibility of fraud and loss of funds used in this network with all the optimistic technical security and economic analysis.

· The closure of the virtual money network. Due to the closed nature of virtual money among users of a particular virtual network, it is challenging to create an exchange to convert virtual money to each other. This market has not been formed in general. For the conversion rate of these currencies, factors such as desirability (psychological factors) of supply and demand and the convertibility of currencies will be effective.

· Threat to the real economy. Where real and virtual money meets, virtual money can stimulate demand in the real world. In addition, other factors affecting monetary policy can also be affected in this way. Currency withdrawal is one of the other plagues of virtual currencies in the current money order because users seek to acquire virtual money by exchanging real currency.

The positive roles of digital currencies on the economy and business transactions

Digital currencies, especially Bitcoin, are a growing area of innovation and have many business opportunities. Changing positions of supervisory institutions, increasing acceptance, and increasing investment in startup companies and products related to Bitcoin have caused trust in Bitcoin to increase. In unfavorable economic conditions of countries, the use of digital currencies can be a solution to many economic problems. Here are ten positive roles and functions of digital currencies:

· Resistant to inflation. The problem with traditional currency is that central banks can print as much money as they like, and in case of an economic crisis, they print new money and inject it into the market, which causes inflation. Inflation is difficult to control. Moreover, it may lead to a decrease in people's purchasing power. Bitcoin and other digital currencies are designed so that only a certain number will be mined. After reaching this number, their number will not increase; therefore, inflation cannot change the value of digital currencies and reduce their value.

· Breaking the boundaries of sanctions. This is good news for the people of our dear country. The international nature of Bitcoin makes it possible for anyone to make transactions anywhere in the world. Today, most online shopping sites use PayPal or Visa cards for shopping. However, since these features cannot be used in embargoed countries or require an intermediary to use them, Bitcoin can be replaced, and people around the world can make the most of the Internet world without any problems.

· Decentralization. Perhaps the most interesting part of digital currencies is that 80% of them are decentralized. It is almost impossible to stop Bitcoin or Ethereum. Moreover, it is an important point because, in the past, every money created had a central organization controlling it. In addition, because there was a central organization behind the currency, it was possible to stop the money created by that organization's decisions. E-Gold company was creating a currency, but the government stopped it. Even though PayPal is a currency in a way, PayPal also has to operate under the supervision of the government. Bitcoin and Ethereum are completely different. These currencies can be stored on any computer, and anyone can change the Ethereum or Bitcoin blockchain database. There is not any central server running Bitcoin. If you stop one server, there is always another. It is like if you stop one company, there is another one. As long as there is a hard drive, internet, and electricity, there will be Bitcoin. Even if governments outlaw digital currency, it can still be used. Just like downloading copyrighted music is illegal, no one can stop it. Digital currencies are a foundation to achieve the eternal dream of humankind (that humans can live as they want). If permanent laws are placed in the way of the evolution of future lives, people will probably not be as patient as they are today. Just as it was once a law to enslave people, when people became aware, they somehow removed this law. Therefore, when people become aware that they can store their wealth in these currencies without the government monitoring or interfering, they will join it, whether it is legal or illegal.

· Almost free. If you are not in a hurry to make a transaction, you can make transactions free. If you want to make your transaction within 10 minutes, the fee is very low, like 0.01 cents. Even if you send $1,000.00, the fee will be less than $10. This is a perfectly fair fee to transfer this amount of money. Nothing can make your transactions cheaper than digital currencies.

· Being international. For example, Bitcoin is Bitcoin everywhere in the world, no matter where you are. When you are in another country, the value of Bitcoin is the same as the country. Bitcoin is not limited to specific geography. It does not matter where you are; if you have electricity, a mobile phone, or a computer connected to the Internet, Bitcoin is ready to serve you. This also applies to other blockchain-based currencies.

· Security. Blockchain-based digital currencies have never been hacked and will never be hacked. Moreover, no one has ever complained that a transaction was incorrect. It is possible that the computers where these currencies are located can be hacked due to low security, and the currencies can be stolen, but it is impossible to hack the currency itself because it is impossible to hack the blockchain. After all, computers from all over the world are connected to it. In addition, the advanced cryptography of Bitcoin and Ethereum makes transactions with the best possible privacy.

· Privacy. It must have happened by now that you have submitted documents or filled out several forms to create a bank account. In blockchain digital currencies, all these are removed. You do not need to register, send documents, or even provide your name and surname to make a transaction in digital currencies; you just need to have your wallet address.

· Easy Shopping. Several major online stores in the world and several sites have made it possible to buy online with Bitcoin, and you can make your online purchases faster than you think. However, this is not limited to online shopping. Today, there are several stores and restaurants in Japan and developed countries where you can pay for your orders using Bitcoin. There is even a store in Japan without salespeople, and you receive the products after choosing the products and paying for them with bitcoins.

· Creating modern jobs and businesses. Although digital currency technology eliminates many jobs, it creates new businesses that provide services with digital currencies. For example, we can mention wallet services, new programming languages, trading houses and exchanges, ticket-buying systems, automatic payment systems, etc.

· The possibility of eradicating poverty. In society, when people's money is not centralized under supervision, then people will have more authority. Like a knife that can be fatal or a savior, these powers have both positive and negative aspects. Nevertheless, with the gradual awareness of people, its positive aspects will be more. Therefore, not digital currencies have to adapt to central organizations, but the organizations that have to adapt themselves to digital currencies.

Drawbacks of digital currencies

· The main drawback of the use of these currencies is that it has led to the bypassing of national governments, and the economic and political power of the country — centered on the means of exchange (money) — will be taken away from the government and will be given to the rulers of the transnational companies of this technology. In this way, the influence of monetary instruments, and most of the fluctuations of the money market, which are considered the most basic economic instruments of governance, will depend on the policies of these companies.

· The second drawback of using these currencies is a challenge for governments, forming an underground money market, and the impossibility of monitoring and taxation based on individuals' financial transactions.

· The third objection to this system is transactions made in informal and illegal markets, such as drugs, smuggling, and underground markets (the dark web is a network that is not available to the public and mostly for illegal purposes such as buying and selling women and girls, weapons and drugs are used). These things can be easily done, and this will be an important challenge for governments.

· The last drawback but not the least one, is that, in this network, no responsibility can be pursued, which will naturally cause people many problems; for example, if the policy of the rulers of this network is based on fraud or lowering the value of these currencies, what will happen to its buyers?

Conclusion

Digital currencies are money that is used electronically to exchange goods and services. As the world's first digital currency, Bitcoin allows users to make online payments on various websites. Digital currencies play a very important role for us in today's world. For example, they have made buying and selling easier.

It means that you can use them anytime and anywhere. Even now, we are witnessing the preparation of the necessary infrastructure to support these digital currencies in many developing countries. However, as their use in many countries is accompanied by legal and social restrictions, we cannot expect much impact on the economy from them.

Due to directing a part of people's capital towards the digital currency market, especially Bitcoin, it is expected that all countries will clarify their position in front of these cryptocurrencies as soon as possible, as well as the possible decision to produce their native digital currency.

The lack of sufficient knowledge and understanding of blockchain at different levels and the insufficient support of managers for developing this technology are among the problems in this direction. However, considering the problems that exist in the discussion of transparency and money transfer, blockchain is a solution.

Looks good to solve these problems. Digital money has been tried not to have the bad characteristics of current money, such as indiscriminate printing and the resulting devaluation, forgery, fraud, and anonymity. The advantage of this system is that it is not dependent on banks or financial institutions. Trading with this currency is considered a barter exchange and is low cost due to the elimination of intermediaries. Because its nature does not depend on the currency of a particular country, as long as two parties exchange digital money, it is necessary to convert it into currencies. It is no longer for payment and transfer, making it very inexpensive to pay with it.

Currently, encrypted digital currencies do not benefit from protection and support by banks and government institutions that prevent inflation, money laundering, and other negative economic effects. This will lead to risks and may cause people will be less willing to invest in these modern currencies. Computer scientists also have a negative opinion about Bitcoin. According to them, the current protocol will become unstable in the future because inflationary rewards for Bitcoin miners will gradually decrease in favor of transaction costs and eventually stop.

The use of digital currency makes the increase in liquidity not hurt the economy, which can be very effective in stabilizing the economy because digital currency works oppositely to credit money (fiat money). Credit money is based on physical and material supports such as gold and works of art, but only users determine the value of the digital currency.

Therefore it is not dependent on a government with its material reserves. This is why using the term "national digital currency" in principle has an internal contradiction. If such a phenomenon is realized, it violates a loan that will not have the benefits of a real digital currency because, again, we have created a government currency.

We will face the same inflationary problem as the traditional currency. In this case, the digital currency suffers from the same wrong and non-organic decisions of the government and turns its back on the rationality of the free market. Digital currency, although it has many fans, the lack of a suitable platform or insufficient information prevents it from growing and benefiting from the exceptional situation created by it.

Only a special few are always leading in the information technology field and benefit from it. There is little reason to think that the macro policies of countries, especially countries with special conditions, should invest more in this category.

On the other hand, its users should always be aware that no one is in a position to predict the future of Bitcoin. No currency should be considered safe from bankruptcy or difficult conditions. This digital currency is still in its early stages of growth, and you should consider all aspects of the work, from price fluctuations to legal and tax issues, before buying it.

It is necessary to address the "digital currency" issue and explain it in practice. The main question is whether it is possible to trust the "digital currency" or whether this issue has behind the scenes like the "dollar," which will result in dominating the world economy.

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