What is the future of cryptocurrency?

Cryptocurrency is digital money made and kept using cryptography, a set of mathematical methods for keeping digital data safe and shared. When Bitcoin came out in 2009, cryptocurrency went from a theoretical idea to a (virtual) reality.

In April 2013, the price of bitcoin hit a record high of $266. In the two months before, it had grown by ten, which caught the attention of investors and the media. When the price of Bitcoin hit more than $2 billion, there was a lot of talk about what would happen to Bitcoin and other cryptocurrencies in the future.

Is there any evidence that these alternative currencies will replace traditional currencies like the US dollar and the Euro? Is the excitement about cryptocurrencies a fad that will pass? Let’s see in this article what will be the future of cryptocurrency.

Future Of Crypto

Determining what will happen with cryptocurrencies in the future might help to go back in time and clarify a few things. First, blockchain is most often linked to digital currencies and items based on them. Tether and TerraUSD are based on Bitcoin and other cryptocurrencies.

These are either "derived" from cryptocurrencies or tied to a significant centralized currency like the US dollar. In other words, a derivative is a short return on investment for a financial investor who gives money to a company. After the company changes the dollars into bitcoin, the money is sent to borrowers worldwide. Also, the organization makes sure that investors in financial markets can trade their derivatives. At any time, for a fixed amount of a particular cryptocurrency that is either tied to the dollar or backed by the dollar.

Depending on their portfolio, people who invest in crypto could either make or lose money. If you already own a derivative, you may find that not enough digital currencies back it or that the guarantee that it can be turned into dollars is thin. In this case, the derivative is almost not worth anything. In the past few months, this is what has happened with a lot of crypto derivatives. Companies that make these products affect how volatile the market is.

They make people want to buy cryptocurrencies and cryptocurrency derivatives by saying investors will get a lot of money back. If derivatives products don't have collateral, investors will be too scared to buy them when times are bad.

Three Key Conclusions Of the Future of Cryptocurrency

Cryptocurrencies are not yet recognized as money. Instead, they are used for speculation and to save money. In late July 2022, for example, only about 250,000 Bitcoins were traded daily, and only a tiny part of that was likely for business. More than 60% of all Bitcoins in circulation are kept in accounts (called "wallets") with more than 100 Bitcoins each. Also, people who invest in cryptocurrencies seem to do so with a long-term goal in mind. For instance, during the most recent sell-off, both "shrimps" and "whales" bought up vast amounts of stock.

As a result, we may reach three tentative conclusions −

The average bitcoin holder takes the long view, implying that the cryptocurrency project is not simple to destroy and can withstand extreme volatility;

Volatility has been exacerbated by crypto futures, whose activity has been accentuated by the market's limited quantity of cryptocurrencies; and

The 2022 drop in the cryptocurrency market has influenced the world of futures, eliminating a significant source of volatility.

Is it wise to invest in cryptocurrencies?

Suppose you are contemplating making a financial commitment to this market. It may be wise to treat cryptocurrency as "investments" like you would approach any speculative business venture. That is to say, accept the possibility of losing all or all your money. As stated before, the price that a potential buyer is prepared to pay at any particular time determines the worth of a cryptocurrency. As a result, it is susceptible to large price swings, increasing investors' risk of financial loss. On April 11, 2013, the price of bitcoin plunged from $260 to about $130 in less than six hours.

If you can't tolerate such price volatility, you should look for other investments. Bitcoin supporters point to its restricted supply and growing usage as a value producer. In contrast, critics see it as another speculative bubble. A prudent investor would do well to avoid this debate.

The reality of untrustworthy systems

Supporters of Bitcoin and other cryptocurrencies think that since no central government backs their digital currencies, they can be trusted. One could say that Bitcoin is better than fiat currencies like the dollar because it is not supported by a central body and is not controlled by a government.

Grundfest says it doesn't matter if you think it's good or bad. Bitcoin and other digital currencies can't be trusted. They still rely on the infrastructure in China that makes Bitcoin and other cryptocurrencies work. If the Chinese government wanted to, it could make the data miners who keep cryptocurrencies running do what it wanted. This would cause significant changes to the systems that make these currencies work.

Is it workable that a stable currency may be the solution?

A rising number of consumers are looking for stable currencies to back up their bitcoin with non-inflationary or depreciating assets. These riches might take the shape of commodities or foreign currencies.

The Grundfest team has several reservations about this strategy. To begin with, it re-invents an existing system. It is also feared that its usage may promote fraud since it is more difficult to audit and govern than traditional currencies.

Professor Grundfest concluded the webcast by outlining some of the more robust applications of cryptocurrencies. Bitcoin may be a better alternative for investors in countries with weak currencies than shares and bonds traded on the local stock exchange.

Long-term prospects for cryptocurrencies are unknown. While supporters see endless possibilities, opponents see only danger. Professor Grundfest agrees that bitcoin has been used, despite his general skepticism.

Conclusion

Bitcoin’s popularity has led to the creation of other cryptocurrencies. If a cryptocurrency wants to be accepted by the current financial system, it must meet a wide range of requirements. Even though this seems unlikely, the way Bitcoin handles its problems could have a massive impact on the future of other cryptocurrencies.