Introduced in 2009, Bitcoin was the first cryptocurrency—a digital or virtual currency that uses cryptography to create enhanced security features. Since then, thousands of other “altcoins” have been introduced. Some people invest in highly volatile cryptocurrencies for the potential return. Some people are excited by the technology that underpins most of them (i.e., blockchain technology). Some people are upset about the potential rise of decentralized finance options. Some people simply revel in the friction this new technology is creating. Meaning, whether you are invested in crypto or not, a pretty significant change is likely on the way, and you should try to be prepared for it.
At their heart, cryptocurrencies represent a new way of doing finance. This is potentially bad news for banks and other financial institutions. Some digital evangelists think of cryptocurrencies as a step into the future of money. Others see this as just another bubble waiting to be burst. Some get excited just by the decentralized nature of the “typical” cryptocurrency offered. Others are interested in the protocols that have been put in place to provide users crossover tech for DeFi (decentralized financial) engagement. Some people see crypto investments as a fall-back strategy against a financial collapse or to stave off inflation against more typical other asset classes they might hold, like equities or Treasuries. Others panic about the lack of a standardized process.
What is Cryptocurrency?
Cryptocurrency and digital currency are an exciting new evolution of money. Unlike traditional currencies (e.g., USD, YEN, CAD) issued by a centralized authority like a government or a bank, cryptocurrencies are decentralized—meaning no one entity is in control. Greater autonomy can also lead to lower transaction fees. For those who may ask, all digital currency (a digital form-based representation of monetary value) is electronic, and it includes cryptocurrency and any traditional currency that is maintained or transferred electronically, such as funds maintained in a bank deposit account or a mobile phone-based digital wallet.
The common theme in most “crypto” is blockchain technology—a decentralized network of computers creating a digital ledger that logs all transactions in a non-alterable format. Each block of documentmation (transaction history) is linked to a unique, CPU-intensive, human-created-but-machine-solved math problem. The computer(s) that solve this problem then send the result out to connected computers to agree on the correct solution, and this process is repeated until a copy of the correct answer is distributed to all connected computers. Each computer’s copy of the mutually agreed-upon (correct) answer is called a blockchain. The time it takes to successfully add a transaction to the blockchain is one of the most fun political get-togethers you’ll ever witness in the crypto community.
The Factors Driving Popularity
Cryptocurrency is ubiquitous. Mobile apps and websites bring technologically complicated processes to clean and simple UX/UI so that average Janes and Joes can join in on the action that is buying, selling, and trading cryptocurrencies; the presence of secure and easily verifiable payment methods reassure the average end users that these fast-paced transactions aren’t, in reality, some risky or unverifiable business (would-be payment processing scammers, be gone). The simple presence of these architectures and this sort of infrastructure amenable to convenient but also secure, end-user-focused payments has invariably opened up an untold number of doors for the cryptocurrency economy that everyone can support and engage in.
The world’s largest and most innovative companies pay cryptocurrency, too. Not just stuffy finance types. The entire breadth of mankind’s economy, from the largest retail corporations and crude oil companies (where cryptocurrency finds a unique use case as a clean, decentralized, and uncorruptible way to transport wealth around the world) to the frontiers of the music industry, have all seen innumerable use cases for cryptocurrency. Not having to worry about the complications of cash and goods-based partial trades ensures that transacting is, in fact, a bit less friction-filled. Customers can have confidence that their funds are being processed like any other form of payment and that using this novel type of money to pay for products and services is perfectly legitimate. This offers them the freedom not to have to instantly sell their BTC or ETH right when it hits the magic “dollar” value in their preferred currency but for it to sit and grow in value until a transaction clears, whether that value accumulates over 10 minutes or as much as 10 days.
The Role of Media and Public Perception
Media coverage is one of the main vehicles for exposing the general population to cryptocurrency. Top-tier outlets and finance publications have stories illustrating the growth of certain coins or the technology behind the operations every day, showing people the kind of money you can make with digital currency. Social media makes discovering those interesting in cryptocurrency extremely easy.
On social media, using hashtags or looking under popular posts, you’ll find a large number of lecturers in personal finance, discussing their prediction for the most successful coins on the market, and the kinds of returns they’ve seen so far in their personal portfolios. People are creating click-driven articles centered around the future of cryptocurrency and why it’s sure to provide significant returns. This era of virality is driven by a fear of missing out.
Online, interactive communities, like Reddit, Discord, and Telegram, make it possible for those invested in cryptocurrency to feel like they belong to a part of a larger collective. Even for those experiencing significant loss currently or historically, each person is able to provide valuable insight and discussion on what is still a very under-discovered and under-discussed topic.
Regulatory Developments and Challenges
Evolving regulation is also a significant driver for the adoption landscape. Clear regulatory guidelines may instill greater trust and legitimacy, coaxing institutional investors off the sidelines—their participation and added liquidity could be a “rising tide that lifts all boats,” bringing much-needed stability to the market. However, overly burdensome regulation may spur a type of digital “brain drain,” where innovative tech companies leave the United States for friendlier jurisdictions. Other potential stakeholders may not get into the space at all.
Whenever people discuss markets or new financial technologies, it is always a good idea to be mindful of security, as unfortunately, “wherever the cheese is at, so too will the rats be found!”
However, there is a lot of good news to cover in this area as well. For one thing, advances in wallet technologies, cold storage solutions, and new encryption protocols are making the individual user’s experience much more secure.
Moreover, many individuals have reported feeling much safer about owning and/or using digital currency as a result of these developments, many of which are being updated and improved. In this regard, a critical element of the regulatory bodies’ work is to make the marketplace environment safe for the end users, particularly in the exchange business.
Cryptocurrency is being widely well-received for a few reasons: its decentralized nature, the potential for great returns, and the leverage to today’s business operations.
Cryptocurrency is a digital or virtual currency that uses cryptography for security. Unlike traditional or “fiat” currencies (like the US dollar), cryptocurrency operates on technology called a blockchain, which makes it decentralized — or unregulated by central banks. A blockchain is a technology that groups various transactions into “blocks”; once a block has been recorded, it is virtually impossible to change. For that reason, blockchain is known for being secure and transparent about its information.
People like the idea of being financially private and detached from any government interventions. The high risk, volatility, and potential for great returns in the crypto world capture willing explorers’ spirits. But more than likely, as people see the value of a new type of asset, they want a slice of the pie, too.
Because many big-name companies like Microsoft, BMW, and Whole Foods allow you to perform a transaction using your Bitcoin, the ability to use cryptocurrencies has permeated into our everyday lives. These factors may call you to buy some digital coins and stay updated on what is happening (general advice to be aware of technology and regulations). If you’re an investor, ask what’s going on in world news, because the crypto world is ever-changing. Stay sharp.
