26 Apr The surge and beyond – what lies ahead for Cryptocurrencies
Cryptocurrencies began in 2009 with Bitcoin, the first decentralized blockchain for peer-to-peer transactions. Since then, cryptos have gained significance as an alternative to traditional mediums for transaction, given their lower transaction cost, higher security (irreversible transparent transactions), and enhanced economic stability (can serve as a reserve currency).
Despite boom, bust and volatility, the technology has continued to witness explosive growth, giving birth to multiple currencies such as Ethereum, Binance, Ripple, Polygon, and Cardano. Globally, there has been increased mainstream acceptance of cryptocurrency:
- Microsoft, Wikipedia, and AT&T allow their customers to use BitPay for transactions
- PayPal allows buying and selling of bitcoin
- Accepted in countries with hyper-inflation, e.g., in Venezuela, as wages are reduced to zilch, residents are converting local currency to digital assets such as Bitcoin
- EL Salvador became the first country to accept Bitcoin as legal tender, while Paraguay, Colombia, and Mexico are soon expected to follow suit
- Coinbase, a US-based crypto exchange, was listed on NASDAQ, providing further legitimacy to cryptos
- Facebook announced its own crypto, Libra
Further, advancement of blockchain utility, via Decentralized Apps (DApps), Decentralized Finance (DeFi) and Non-fungible Tokens (NFT), has spurred exponential activity in the sector; currently, there are over 10,000 cryptocurrencies addressing various utilities.
With growing popularity and price volatility, speculators and investors have started considering cryptos as a mainstream investment option (like gold). However, with high price speculations comes the risk of cybercrime and scams. It also leads to skepticism (for lack of regulation) and illegal activities (terrorism, darkweb, cyber fraud).
Key Concerns: Colossal energy requirements for mining has forced companies (such as Tesla, which claimed to accept Bitcoin as a payment method, revoked it in May 2021) and countries (such as China) to crackdown on Bitcoin (also driven by its opposition to decentralization and launch of the digital Yuan).
What Next? Alternative blockchain (also called Altcoins) such as Binance Smart Chain (backed by the largest global crypto exchange) and Polygon are looking to alleviate these issues with energy efficient blockchains.
The advent of cryptos has reshaped currency competition, architecture of the international monetary system, and the role of government-issued public money. The big crypto trends to watch in 2021 are increased volatility, tougher regulatory oversight, and continued support from big institutional investors. All said, cryptos will continue to drive massive disruption in the global financial ecosystem.
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