Cryptocurrency is a type of digital or virtual money that uses advanced encryption techniques for security. Rather than being issued by a central authority like a government, as is the case with traditional currencies, cryptocurrencies operate on decentralized computer networks that leverage an innovative technology known as a blockchain. The use of blockchain technology not only enhances the security and verifiability of financial transactions but also means that value can be transferred directly between two parties without the need for an intermediary bank or payment processor. This feature provides a means of financial democratization, where anyone with a phone and internet access has the means to use banking-type services.
As cryptocurrencies become more prevalent, we become more aware of their positive and negative influences on the global economy. To give you an idea of how big these industries have become: many large Fortune 500 institutions have invested hundreds of millions of dollars in blockchain and digital currencies; the financial cost of the electricity used to mine bitcoin (BTC)—over 120 TWh annually—is more than enough to power Argentina and roughly equals the total carbon dioxide emissions of London. The sheer, constantly growing size of the cryptocurrency industry and its environmental effects mean that it is increasingly harder for international governments to ignore. This has resulted in what, for many, might seem like a litany of negative, unfair, and overwhelmingly reactionary rulings and actions against the industry by various governments and regulators.
The technical specs of cryptocurrencies are still being developed, with different coins having different purposes, and the relative market share of coins is still changing as the market continually evolves. Some may argue that the lack of a blue-chip winner in the crypto space is a sign that the space isn’t mature, like with Apple in phones or Amazon in retail. Others would argue that the diversity is a good thing, offering healthy competition and that there is already a protocol internet-wide winner: TCP/IP. Others, still, may argue that TCP/IP only truly became the internet’s de facto protocol during the dot-com bubble, and that usually, only in times of madness like this (the internet and now, with Bitcoin) does a protocol winner emerge.
Innovations in Blockchain Technology
Blockchain technology is commonly associated with cryptocurrency due to its role as the underlying framework that allows secure and transparent transactions without a third-party medium. But what exactly is blockchain?
Without getting too deep into the weeds, blockchain is a kind of distributed ledger that records all transactions across a network of computers. In other words, it’s decentralized, which means no one person owns it and you don’t have to put your full trust into one specific entity. That makes it a lot safer and decreases the chance of fraud. If someone wants to steal your assets or hack the network, that bad actor has to outrun presumably hundreds or thousands of other contributors in the network (referred to as “nodes”) to successfully steal your stuff. Additionally, each “transaction” is confirmed by every other computer that’s connected to that same network before it’s validated and linked to previous transactions as a “block” in a “chain.” Hence, the term “blockchain.”
One of the biggest use cases for blockchain technology right now—aside from the classic “buying and selling cryptos”—is in an emerging sub-industry of the crypto world, known as decentralized finance, or DeFi for short. The basic concept of DeFi is to do everything that traditional financial systems do (like lending, borrowing, trading, earning interest, etc.) but better because it’s all based on the technology of the blockchain. On these DeFi platforms, you and someone else from around the world can lend and borrow assets directly back and forth without the big banks and corporations taking a piece of your pie. It’s almost like participating in a revolutionary system that operates in a non-censorable, peer-to-peer, trustless, and open-source financial ecosystem.
As for what else blockchain can do (and what problems it can solve), the short and accurate answer is: a whole lot. It can be applied to practically any industry in a wide variety of ways. Supply chain management? Yes. Healthcare? Absolutely. Real estate? You bet!
The Future of Decentralized Finance
Decentralized finance (DeFi) fundamentally alters most traditional finance and some investment strategy. DeFi, at its core, is about bootstrapping and building finance without a bank. It’s the financial system built on a blockchain, like Ethereum, which, among other things, lets you lend, borrow, and trade digital assets. Banking those without internet, etc. This approach has attracted some cypherpunks, but also a raft of investors in the cryptocurrency space who are looking at DeFi as a way to manage their portfolios and turn them into something far more profitable.
In some slightly grandiose terms, the implications are as follows: the first is the total democratization of financial services. Traditional finance means you have to use some institution to manage your transactions, and that institution maintains an entire layer of business that enforces rules and fees. DeFi starts by assuming that the base layer of the project (in this case, the platform the dApp version of the bank is building) is inherently a base layer open to everyone. All the challenges and promises of this particular approach will be covered later, but the main trick with this approach is that if you can design a dApp that finds appeal that 7–8 billion people can use, then that’s a black swan event of staggering proportions.
Second, DeFi will solidify a concept referenced in the latter portion of the 2010s as the “re-bundling of the banks.” The core reason for the re-bundling is, of course, DeFi’s inherent appeal. Many of the legacy banks are targeting the crypto upstart to drive the movement, which has helped unleash a host of DeFi projects that, among other things, are “blurring” the lines between fintech, capital markets, and the middle/back office.
The Evolving Landscape of Crypto Regulations
The landscape of crypto regulations varies significantly across different jurisdictions and is generally seen as messy and confusing. Governments worldwide are grappling with how to regulate cryptocurrency, and in the United States, many regulatory bodies are making that future clearer. Organizations like the SEC, CFTC, and other regulatory bodies have been increasingly eyeing crypto-assets, creating a smorgasbord of different regulations. This complicated maze has many negative and positive future business implications, many of which will be covered in future articles.
Despite only touching on a few overarching topics, their influence on the future of cryptocurrency will be nothing short of huge. Super strict regulations that mandate many different technical requirements will weed out smaller businesses, while other “lighter touch” regulations could create an attractive environment to various businesses and even institutional investors. The strategic conversations that different government bodies have with different stakeholders will be very important.
The Rise of Digital Currency
Since Bitcoin was first issued in 2009, the nature of money has changed as the understanding of cryptocurrencies has evolved. No longer would we simply see currencies as a badge of national identity and store of individual wealth. Bitcoin was meant to be electronically based and globally accepted. But some of the banking systems to which you could connect were not very good, so the creators developed new ones. This also was the birth of the blockchain, the new medium for data transparency and data security.
As people began to see the potential of Bitcoin as a medium of exchange (rather than just a diminishing reserve of value), the ability to use it as a transaction payment system increased. There was a real move to buy/sell at a place that accepted cryptocurrencies. And from a personal point of view, that’s what I did. I searched for places where I could use it as a medium of exchange. Nevertheless, still more people needed more proof of use and a large number of organizations were established that made things like wallets, exchanges, and payment processors, into which you could go, and cryptocurrency would come out.
More recently, cryptocurrencies have become to act more like wallets as issuers have accepted these currencies’ use as stores of value. Paypal’s entry into the market makes its transition as a pseudo-card complete; not all cards need to be plastic. You can add and withdraw value from your currency and transact in one of a limited number of ways or with a set of merchants. In this, Paypal now seems to be the point of contact (for many) with your virtual currency. In whatever form it takes place, the evolution announces a coming of age.
Emerging Cryptocurrency Trends
Over the past few years, the crypto market has undergone a dramatic evolution. What used to be regarded as the “wild wild west” of finance has since gained acceptance and recognition from the traditional financial markets.
There are a number of indications of the increased adoption. First of all, more and more companies today are starting to accept Bitcoin and other cryptocurrencies as another mode of payment, which points to changing consumer trends.
From an investment perspective, both retail and institutional investors have surged into the market. This trend has managed to drive up the prices of practically most, if not all, cryptocurrencies. At the same time, it has also changed the playing field, as we’re now seeing the traditional brokers and firms adopting crypto, as well.
Decentralized finance — the ability for regular people to lend, borrow, and earn interest — all while removing the middleman, has become the next frontier of crypto and blockchain, Charlie predicts.
Until now, investors have been wary of DeFi projects because of their notorious rug pulls and ambiguous roadmaps. But with an established leader, team, and project fundamentals, new projects will take advantage of DeFi’s next exponential growth amid the crypto industry’s traction.
Crypto Predictions: What Lies Ahead?
The future of the cryptocurrency market will, like most things, be shaped by technology and the law. As blockchain technology reaches maturity, we can expect to see many more applications of it covering all areas of life. Banks will—finally—start to buy in. (Already, Goldman Sachs has said it is “exploring” ways to give investors access to cryptocurrencies and their technology; while 65 of 67 votes in Finder.com’s cryptocurrency panel responded “yes” when I put to them the question
“There will be a correction. Does that mean the market will be more stable in future?”
and get some sleep.
No one can predict the future, just trends.
Just under half of the respondents to my last question said they would not challenge the introduction of cryptocurrency legislation in their country.
Legislation will try to kill the market.
Just like Pearson.
Legislation will introduce the sector to the “old-money” brigade.
You may have spotted one of the thirty-two so far.
I will use its place to discuss two further sections, decentralized finance (DeFi), and non-fungible tokens (NFT), where the future will take hold.
The question is less what the future will hold; rather, what does the future not hold for it?
The cryptocurrency landscape is defined by the word: “change.” Many articles like this one discuss new technologies, laws, or market behaviors that can drastically alter what people might find to be the best cryptocurrency to buy. Knowing how to keep a finger on the pulse of this industry is an absolutely necessary first step to be taken down the rabbit hole.
No one should be content with staying at this step, but it’s important to note that your understanding of the crypto market will constantly and continually change. Required reading will now be following public sentiment and a number of different crypto analytics. It’s important to know what new laws are being passed, who’s who in the bitcoin market, what will the blockchain scalability actually mean, and where is the market (not just the pendulating price of bitcoin) going? Oops—there are the words “Decentralized Finances” (DeFi) again …
Lastly, make sure you’re prepared to take the next step for you. Don’t worry if you don’t completely “grok” how it will be done. Whether you are figuring out just where bitcoin fits in, or how you could take advantage of going long on VeChain, know which part of the audience you are in. Or maybe you already know what the Newbie will do. Which rabbit hole are you prepared to jump when it opens?
