The popularity surrounding cryptocurrencies has grown exponentially in recent times. This meteoric rise has been accompanied by institutional interest, including HSBC, Goldman Sachs, BNY Mellon, JPMorgan and more. Other private and public investors have also expanded their commitment to cryptocurrencies like Ripple, Stellar, and Ethereum.
The crypto market value doubled earlier this year, pushing it past $2 trillion for the first time in early April. To put things into perspective, the total market cap of Apple Inc. is just above $2.1 Trillion. As of June 3, 2021, the global crypto market cap is $1.75 trillion. The popularity was propelled because of the extravagant returns they have provided to investors. However, we need to look beyond the returns to understand the implications of cryptocurrencies.
What Is the Crypto Market, and How Does it Work?
Cryptocurrency markets are decentralized in nature, which means that they are not issued or backed by a central authority like a government. Instead, they work across a wide network of computers. Cryptocurrencies can be bought and sold through exchanges and stored in ‘wallets.’
Cryptocurrencies are shared digital records of ownership stored on a blockchain. When a trader wants to send cryptocurrency units to another trader, they send them to that trader’s digital wallet. The transaction is not considered final until it has been verified and added to the blockchain through a process called mining.
What Is Blockchain?
For cryptocurrencies, blockchain is a shared digital ledger. It shows how ownership has changed over time. These transactions are recorded in ‘blocks’ with new blocks added at the front of the chain and linked together by cryptography. Any attempt to alter or change data disrupts the block’s cryptographic link and can be quickly identified as fraudulent activity.
Research by TechJury states that by 2022, worldwide spending on blockchain solutions will reach $11.7 billion. Additionally, the number of registered blockchain wallets in the first quarter of 2020 was 47.14 million (Statista).
A few curious numbers to watch are the global blockchain technology market estimated to accumulate $20 billion in revenue by 2024 (Cision) and the integration of blockchain in healthcare with a rise of $5.61 billion by 2025 (BIS).
Crypto Mining
Crypto mining is the process through which cryptocurrency transactions are checked, and new blocks are added to the blockchain. Mining computers check the transaction details against the transaction history stored in the blockchain.
They then compile complete transactions into a new block and generate the cryptographic link to the previous block by searching for a solution to a complex algorithm.
Future of Cryptocurrency
Deutsche Bank, in their research report called Imagine 2030, predicts that by 2030 digital currencies will rise to over 200 million users. Furthermore, the report also talks about the future of cryptocurrency, which could eventually replace cash one day, as demand for anonymity and decentralized means of payment grows.
The success of the future of cryptocurrency will depend on mainly four conditions – appropriate technology, consumer demand, corporate champions, and an amendable regulatory environment.
Wider acceptance
The adoption of cryptocurrency by a wider public and its widespread acceptance by consumers as a form of money will mean overcoming practical, technical, and regulatory challenges. This is an important aspect that will define the effectiveness and success of the future of cryptocurrency. PayPal last year, announced the launch of a new service that enables their customers to buy, hold and sell cryptocurrencies directly from their PayPal account. Similarly, earlier in May, Visa announced a partnership with Tala that aims at providing easier access to cryptocurrencies for underbanked consumers.
Market volatility
Cryptocurrencies are still seen as highly speculative forms of investment that are not suited for all individuals. The future success will depend on the ability to deal with issues like the fact that there is no central authority to ensure a smooth process or the value fluctuation of the cryptocurrency. Many people fail to understand the value of cryptocurrency as they are only focused on speculative trading that is driven by price and volatility. Furthermore, the lack of transparency raises concerns about tax evasion and money laundering, which is why some countries do not consider it legit.
Part of the financial system
Cryptocurrencies that aspire to become a part of the financial ecosystem in the future, will need to satisfy a few aspects like preserving user anonymity without being a conduit for tax evasion or money laundering, being technically complex to avoid fraud but easy to understand for consumers, etc.
Stablecoins are cryptocurrencies pegged to the fiat currency. Tether or USDT is one such crypto that is pegged to the US Dollar. Tether is currently the third largest crypto in terms of market cap after BTC and Ether. If we just imagine this for a second: Tether won’t rise like Bitcoin, yet it is immensely popular. The reason is simple: investors are beginning to recognize cryptos to be at par with fiat currency.
Market shares
In the future of crypto, trading and e-commerce markets are expected to hold a major share of the cryptocurrency market. The penetration of crypto in digital payments is expected to affect cross-border transfers with the potential to become the main vehicle for e-payment. This will make digital payment services backed by blockchain the next big thing in global e-commerce growth.
Financial institutions are also directed to blockchain technologies, which are expected to drive the market in the upcoming years.
Future of Bitcoin
Bitcoin is among the top-performing cryptocurrencies and has found implementation in the public sector as well as different business sectors. Let’s take a look at what the future holds for Bitcoin.
With its increasing popularity, Bitcoin users predict that by 2024, almost 94% of different types of Bitcoin will be released.
A forecast by Jeremy Liew, Snapchat’s first investor, estimates Bitcoin to hit a staggering $500,000 by 2030.
A huge segment of technologically sound individuals and companies favoring the decision to use different forms of encrypted currencies clearly indicates that the future of Bitcoin is, on the whole, going to be right.
Should You Invest in Cryptocurrency?
Cryptocurrencies have recently seen a sharp spike as the growing interest of investors. The future of cryptocurrency in finance is being watched closely by institutions from all segments of the market. And the right time to invest in cryptocurrency is now. Here are a few reasons why you should consider investing in cryptocurrencies.
High liquidity
Cryptocurrencies are highly liquid in nature – it is easy to buy and sell them. The rise in automated trading platforms also enables the use of various crypto investment strategies and algorithm-based trading.
Ownership
With cryptocurrencies, the ownership stays with you. As it is decentralized in nature, you do not need to rely on any financial institutions for holding or transferring your crypto.
Diversification
There are more than 5000 types of cryptocurrencies in the market today. You can choose the digital coins you wish to invest in and split them across different crypto wallets. This way, you can avert risks and still earn consistent returns.
Simplicity
Investing in cryptocurrencies is quite simple. You do not need to deal with any institutions or sign papers. You can simply create an account, get a wallet and track all your assets with no extra effort.
Closing Thoughts
We should expect cryptocurrency mainstream adoption to the extent that there is a focus not solely on popularity due to speculation and digitization trends but on overcoming the current challenges without eroding the fundamental premises of their existence.
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