The Future of Cryptocurrency

Cryptocurrency, also known as crypto, has become one of the most popular buzz-words of 2021 and is growing more popular by the minute. While traditionally thought of as similar to stocks, crypto is in fact a different form of money entirely. Crypto, which consists of differing currencies ranging from Bitcoin to Dogecoin, is a decentralized currency, meaning that it is not backed by any person or government and can be traded without the involvement of a third party. Crypto is also a digital currency, meaning that all transactions take place digitally between anonymous users. Crypto is thus very different from traditional currencies like the US dollar, which is a centralized and physical currency backed by the US government and kept by third parties such as banks, which have a lot of power over the U.S. dollar as they can print as much money as needed and can potentially cause inflation. In contrast, the value of cryptocurrency does not exceed its market value. Since crypto is not linked to the US dollar directly and some forms, like Bitcoin, are not susceptible to inflation, many investors have turned to using it as a new way of storing their money. This is usually done when people fear inflation or devaluation of their native currency. But as with anything new in the financial scene, many around the world are skeptical about crypto’s viability. Yet regardless of what some may say, crypto is sure to remain a key element of the world’s new monetary system.

While crypto’s naysayers may just seem opposed to change, some of their complaints about its volatility are legitimate concerns. Cryptocurrencies can lose their value at any second, but not in the same way a country’s currency would collapse. With no government backing, the entire basis for crypto’s value is its consumers’ faith in the currency. Thus, if nobody values crypto and people stop purchasing, trading, and using it, it is essentially worthless. While this has a very low probability of happening, it can still occur at any moment, making crypto very volatile and potentially dangerous for some investors.

Yet while there is never complete faith in its value, crypto’s system of exchange is extremely secure. Crypto transactions are protected by blockchain, which is a binary code that records and links all actions made using crypto. The users of blockchain are anonymous, but the money itself can still be tracked at all times. This allows for the safe tracking and transmission of currency, preventing any counterfeit crypto from being circulated, without compromising the privacy and safety of its users.

Thus, while cryptocurrency may seem like a risky gamble, it does have its advantages, many of which arguably outweigh its drawbacks. Transaction fees are done directly without needing a third party to monitor the exchange, allowing international payments to be made without a third party fee. This saves users a lot of money, as they no longer have to pay the ‘convenience’ fees of current money-transferring apps. Crypto’s greatest advantage, however, is that it can be used for the unbanked—that is, people without a bank account. All someone needs is a smartphone or a computer to start using crypto. This is a massive step forward that can help integrate more of the world’s population into the economy, as poorer people who typically cannot afford to pay the fees traditionally charged by banks can now participate in the financial world. This potential boon is enormous and greatly outweighs the unlikely risk of crypto devaluation, making many eager to invest in cryptocurrencies such as Bitcoin.

However, along with the aforementioned volatility, there are some other serious concerns to be considered. While blockchain is a fairly safe mode of transferring money, security breaches have occurred in the past. These hacks, while rare, can cost investors up to hundreds of millions of dollars. Even though enhanced cybersecurity has been established to prevent further attacks, the recurring threat of these breaches still harms crypto’s credibility and thus potentially its viability. Furthermore, many cryptocurrencies are quite unstable, especially in their infancy, and can gain or lose massive amounts of income in as little as a few hours. This was most famously seen in Bitcoin’s early days. In December 2017, Bitcoin was valued at its then-record high at the time of around $19,650; it had become mainstream and everyone wanted a piece of it. However, just a year later, it plummeted to around $3,100—an 84% drop.

This extreme unpredictability is possible for virtually every cryptocurrency due to their values coming solely from the faith people have in them. Additionally, the matter of regulation is a pressing issue for many crypto users. Currently, crypto is unregulated, meaning that there are no set numbers, rules, management, or any support for any cryptocurrency. As a result, many lack faith in the currency’s potential, including the CEO of Berkshire Hathaway and famous investor Warren Buffett, who has said, “It doesn’t make sense. This thing is not regulated. It’s not under control. It’s not under the supervision [of the]… United States Federal Reserve or any other central bank. I don’t believe in this whole thing at all. I think it’s going to implode.” The lack of regulation is an important issue that will continue to leave investors worried over the future of crypto, even if most other problems with the currency are resolved.

Because of this persistent concern, many have proposed government regulation of crypto to make it a more stable and widely appealing currency. However, this is much easier said than done. It is true that leaving crypto unregulated will make it subject to instability and limited support to mediate that instability, but regulating crypto would defeat its fundamental purpose—to be a currency that is decentralized and free from government intervention and control. Regulating crypto can pose as grand a threat as leaving it unregulated, and the economic drawbacks could potentially be as serious as the social backlash.

Many countries such as the U.S., Canada, and Russia remain divided on this matter, but some nations have avoided the issue by outright banning crypto. Most of these countries have claimed that the currency has allowed for gambling fraud and money laundering, while other countries that have banned crypto have asserted that the currency has been used by terrorists to purchase illegal arms that are employed in places of conflict like in the Middle East. As crypto grows, however, this matter can no longer be so easily ignored. Regardless of one’s views on the benefits and drawbacks of the currency, it is now undeniable that crypto is here to stay.