What is Cryptocurrency and is it the Future?

What is Cryptocurrency and is it the Future?

Cryptocurrency has had an explosive year so far. While still in its infancy, cryptocurrency continues to evolve. There’s still much to learn about the technology and its volatile markets.

Many people feel cryptocurrency is the next, best thing. However, plenty of others disagree. They have major concerns and worries about the technology, as well as its ability to affect traditional financial markets.

So, what’s the future of cryptocurrency?

What is Cryptocurrency?

To put it in the simplest form, cryptocurrency is a type of digital money. Cryptocurrency can be used to make payments for online goods and services. And it’s even possible to transfer traditional financial assets (such as US dollars) into this digital currency.

It may help to think of cryptocurrency as a type of token, such as you would get in a casino. At the casino, you win tokens, which are valuable and represent a specific amount of money. When you’re finished playing the games, you then take the tokens to be cashed out. This means the tokens are exchanged for physical money. This is similar to the way cryptocurrencies work.

Cryptocurrencies work with a technology called a blockchain. Blockchain is a decentralised technology that works across many computers. These computers manage and record all transactions, making it more difficult for anyone to steal or misuse this digital money.

How Many Cryptocurrencies are There?

That’s a great question! The answer will surprise you. According to Planet Crypto, as of May 2021, there were 10,115 different cryptocurrencies listed, and the number continues to grow. Each is traded publicly. The total value of all cryptocurrencies was more than $1.9 trillion.

Here’s a list of the top five cryptocurrencies:

  • Bitcoin
  • Ethereum
  • Stellar
  • Binance Coin
  • Cardano

You’ve probably also heard of Dogecoin, which has an interesting story. This cryptocurrency was started as a joke back in 2013. The mascot for this digital money is a Shiba Inu, a dog that resembles a red fox.

What Makes Cryptocurrencies Popular?

There are a number of reasons that cryptocurrencies have become so popular. Cryptocurrencies are seen to carry a number of benefits, including:

Blockchain is more secure: many believe blockchain technology is more secure. Blockchain purports to make it easier to track and record all transactions, making it almost impossible to misuse or steal the money.

Decentralisation: is another important concept with cryptocurrencies. Decentralisation means no one entity is in charge of the money. In other words, banks do not manage the digital money supply. Decentralisation is also highly prized by individuals who no longer trust traditional banks or their governments. With cryptocurrencies, individuals maintain access and control of their money.

Speculation: many speculators are not interested in the long-term future of cryptocurrencies. Instead, they are motivated to make as much money as they can right now, as the currencies continue to go up in value.

Reaching the “unbanked:” cryptocurrencies are also seen as a way to reach out to those who don’t have access (or have limited access) to banks. Cryptocurrencies make it possible for anyone with a smartphone to make payments, shop, and more.

These are some of the main reasons that cryptocurrencies continue to gain interest around the world.

Are Cryptocurrencies a Good Investment?

It’s important to understand that cryptocurrencies, as they stand right now, can carry risks. In fact, trading in cryptocurrencies tends to carry more risks than traditional investments. Some currencies fail, while others explode into higher and increasing value. Those that rapidly increase in value one day can drastically fall in value the next day.

Any currency – real or digital – needs stability. Stability allows sellers and buyers to determine fair prices for goods, for example. With an unstable currency, this is impossible. The price volatility of crypto continues to keep these currencies from being widely adopted.

Cryptocurrency values tend to fluctuate quite a bit, making them a risky short-term investment. However, if you’re willing to take the risk and go for the long-term, then cryptocurrencies may be a good investment for you.

Other Concerns About Crypto

As well as being volatile, there are some other concerns that come with cryptocurrencies. For one thing, mining cryptocurrencies takes a huge toll on resources and the environment. Mining crypto takes quite a bit of energy.

What’s more, many environmentalists say that the mining of cryptocurrencies becomes less efficient as the price of crypto increases. This is due to the computing power needed to run blockchain technology. The energy required for mining crypto is usually derived from fossil fuels, which are largely responsible for the climate changes seen in recent years.

Mining cryptocurrencies also increases the amount of electronic waste due to hardware becoming outdated. The hardware used to mine cryptocurrency is called application-specific integrated circuits. These circuits are not able to be reused for any other purpose. And they quickly become outdated, leading to increase waste. According to Digiconomist, mining Bitcoin generates between 8,000 and 12,000 tons of electronic waste each year!

Another problem has proven to be vulnerable to hacker attacks. While blockchain can keep transactions protected, crypto exchanges have been hit by large hacker attacks. These attacks led to many investors losing large sums of money due to their exchange being attacked.

Large-scale pyramid schemes have also left many investors without money and without compensation. In addition, securely storing cryptocurrencies is still in process. Without secure storage, it’s easy for a hacker to rob an individual of all their crypto coins.

What’s the Future of Cryptocurrencies?

Many investment companies see cryptocurrencies as a huge risk and advise their clients to avoid cryptocurrencies. Experts believe the only way crypto can have a future is through auditing and testing, standards, and more to ensure market integrity and security.

As technology continues to advance, investors and countries are searching for ways to improve the stability and security of cryptocurrencies. In addition, it may be necessary to adapt (and accept) the institutionalisation of cryptocurrencies.

Summing It Up

Cryptocurrencies are considered a shaky investment by some, while others are wholly embracing these digital currencies as the future of finances. However, full adoption by the financial industry, merchants, and individuals may require more oversight and institutionalisation of cryptocurrency.

Cryptocurrency is still in its infancy, which means for now it continues to be a highly speculative investment. In addition, more security and stability are needed for broader adoption of cryptocurrencies in the coming years.