A Focus on the Digital Currency
When the Internet was invented, everyone began to look for ways to make money online. Most of these ways involved using the power and connectivity of the Internet to improve upon old industries. Advertising, retail, communications – everything was being disrupted. The banking industry was the last to be disrupted because of all the regulatory restrictions that are in place with respect to the management of money.
Options like PayPal began to emerge as early as 1998, but these systems were mostly just centralized online managers of fiat currency rather than completely new digital currencies. The first true digital currency that has ever received mainstream attention is Bitcoin. It was conceptualized and first released in 2008, and since then has built a steady following. Today Bitcoin has the highest exchange rate among digital currencies and is traded at all cryptocurrency exchanges. As of November 8, you could buy Bitcoin at USD$7100, but by the end of 2017 its value is expected to increase significantly.
Make Way for Bitcoin
The special thing about Bitcoin is that it is completely decentralized and no one is in control of its management. This is in stark contrast to fiat currencies, which are notoriously overconfident in their ability to project the effects of their interventions. Perhaps, this is the reason for Bitcoin to have received so much traction in the beginning. The US economy was just coming off a major collapse due to poor management of the economy, and the reaction of the Fed was to push a ton of money out into the economy hoping that such measures would jump-start it back to normal.
For anyone who disagreed with this notion, they felt they had never had a chance to vote on how the currency they currently held their savings in would go through a massive increase in supply. If any of these people began looking for an alternative to prevent that from happening again, they would find Bitcoin as being a perfect substitute.
Buy and Hold?
Satoshi Nakamoto designed Bitcoin so that there would only ever be 21 million coins created. It is estimated that Mr. Nakamoto kept 1 million of these coins for himself, and even more have been lost in the early times of people amassing coins and losing them through human error.
This strict monetary policy means there will always be a limited supply for Bitcoin. With demand for it growing all the time, it feels like the price of the digital currency will always go up. This is what happens when a good is subjected to deflationary pressures.
For Bitcoin to reach a level of mass adoption, it is necessary for it to become both a medium of exchange and a store of value. Right now, the big issue with Bitcoin is everyone treating it as a store of value but not as a medium of exchange. The prevailing belief everyone has is that the price is going to continue to go up. Such thoughts have created a desire to hold onto this crypto coin for as long as possible. While a good thing in the short-term, this could harm Bitcoin in the long-term and prevent it from becoming something akin to digital cash. Instead, it could be treated like digital gold, which is more of a buy-and-hold long-term investment.
Bitcoin is generally circulated through exchanges and marketplaces. Not many companies accept it as payment yet, but there are a few who have begun to advertise the fact customers can pay in Bitcoin. This is more of a publicity stunt than anything at this point but also shows the likely future of the cryptocurrency. Exchanges and marketplaces allow the investors and traders to buy and sell Bitcoin right now, but this is a purely speculative use that doesn’t lend itself to the originally envisioned use of Bitcoin replacing cash.
More Than Digital Money
Bitcoin is hardly the only cryptocurrency though. As it began to gain some popularity and support from high-tech investors, developers created numerous other spin-offs. These spin-offs were designed to build upon what Bitcoin is and also solve a specific problem or have a certain use case. The most unique of these is Ethereum.
Ethereum was invented much more recently, in 2015, and has already taken up second place in terms of market capitalization of cryptocurrencies. This sort of momentum is commensurate with the amount of usefulness it will be capable of providing. Ethereum has a currency, which is referred to as “Ether,” but its value proposition is in being a decentralized platform for developing decentralized applications. This means you can build applications that run themselves on Ethereum. By utilizing smart contracts (logic-based building blocks), it has become possible for developers to build out a lot of innovative uses on the platform.
Many uses exist already, and more pop up every day. For every situation where it makes sense to have a public record of transactions, there is a case for blockchain to be implemented. We are seeing this in the art industry, the music industry, and all across the financial services. In particular, it may be viewed as a way of repairing the election system.
The point is that there are a ton of potential uses for blockchain and the cryptocurrencies powering it. And by ‘powering it’, I mean that for these uses to get funding, investors need to contribute cryptocurrency to the ICO (Initial Coin Offering). That is why we have observed such a large increase in the prices of Ethereum and Bitcoin in 2017. And just think of what would happen to the currency in a small country if the only way to invest in the burgeoning companies was to use their currency. The effect would be massive.
What does the Future Hold?
The future of cryptocurrencies, in general, has a lot to do with which cryptocurrencies are able to niche out and dominate a certain space. With contenders like Zcash and Monero entering the privacy/security space and Dash looking to become the digital cash, it seems like the cryptocurrency world is ready to fragment into a bunch of small uses. Ethereum and Bitcoin are currently the big favorites in the industry. But this situation may change at any moment as more participants enter the market and competition ensues. What is clear is that the cryptocurrency market has a large potential to disrupt some industries, and it is going to happen soon.
Mary Ann Callahan an expert on Bitcoin-related topics and is a Journalist at Cex.io – cryptocurrency exchange. Mary Ann writes articles related to blockchain security, bitcoin purchase guides or bitcoin regulations in different countries.