Ever since Bitcoin was first introduced in 2009 adopters of cryptocurrency want to know what the future holds for digital assets. It wasn’t until 2013 that many people begun to take note of the investment potential of Bitcoin and other cryptocurrencies. Since then it has been quite a roller coaster ride with volatile price swings that have taken a single Bitcoin from around $266 to almost $20,000 in value.
In 2017 Bitcoin has a market value of more than $2 billion, but the enthusiasm among investors was given a harsh reality check when the token lost more than 50% of its value. This market crash increased the discussion and debate over the future of cryptocurrency. Can these digital tokens eventually replace traditional currencies as a means of exchange? Perhaps they are just a passing fad that will fade as investors lose interest. Here are some things you should know about what the future holds for cryptocurrencies.
Analysts Predict Crypto Changes
The massive increase in Bitcoin value during 2017 and the popularity of cryptocurrency exchanges made tokens a focus of modern financial analysts. No longer were they solely focusing on stocks and commodities as investment vehicles. An entire community of analysts began to study and predict the future of digital money.
These analysts have largely focused their attention on figuring out what will happen to Bitcoin as a result of institutional involvement. The large investment firms have the potential to bring big sums of money to the table, but so far Wall Street and other traditional investment groups have been leery and hesitant to get involved.
There has been talk that cryptocurrency could somehow make its way to regular stock exchanges like the NASDAQ . There are certainly advantages to this type of participation by the mainstream. It could help to legitimize crypto and also the possibilities of blockchain technology. Some have also floated the idea of a Bitcoin ETF, or Exchange Traded Fund, that would make it easier for individuals to purchase Bitcoin as an investment.
At the present time the roadblock to such mainstream financial integration appears to be a matter of demand. It has been stated many times by mainstream investors that Bitcoin is too volatile. Some of these investors, like Warren Buffet, have even predicted that all cryptocurrencies will come to a bad end. On the other hand, many people claim that Buffet and other investors are out of touch with reality and refuse to accept any type of model that defies traditional investing.
There is an old adage that says people fear what they do not understand. A lack of understanding about Bitcoin, Ethereum, and other cryptocurrencies could be responsible for the institutional lack of enthusiasm.
Bitcoin and other cryptocurrencies are unique in that they are decentralized currencies which function on a peer-to-peer model. The peer-to-peer technology that drives cryptocurrency is called the blockchain. Blockchains are what allow for the issuance of digital tokens, and it also governs the processing and verification of transactions.
What this means is that there is no government interference in the management of cryptocurrencies. This makes them a direct threat to the status quo. Some people in the financial sectors don’t like threats to the established order. Others are becoming more progressive and attempting to discover what blockchain technology can do for their institutions.
There is no central authority that guarantees or backs the value of a Bitcoin. There is no Federal Reserve or Treasury that is tasked with printing notes. Bitcoin and other tokens have no physical existence. They are created through a process called mining. Literally anyone can become a cryptocurrency miner if they are willing to invest the money in mining equipment or join a mining pool.
About 25 Bitcoins can be created every 10 minutes with mining. There is also a cap to the total number of Bitcoins that can be created. That number is 21 million. So, unlike other types of traditional currency which can be printed on demand to meet the needs of a government authority, the management and creation of Bitcoin is carried out according to a specific process which does not require third-party involvement by banks or governments.
That factor creates a lot of mistrust among governments and central banks who are hesitant to release control of money to the masses. Many people don’t realize how the economy can be affected by the meetings that take place among the Federal Reserve officials. The current president of the United States has even gone so far as to suggest printing more money to resolve economic hardships endured by the government.
There is no such mechanism for Bitcoin. Its value is solely dependent on what individuals are willing to pay for it. This is what drives the price up or down. In other words, the value of cryptocurrency is very difficult to manipulate.
The downside of this is that cryptocurrency exchanges have no traditional oversight. The funds that a person invests in a cryptocurrency exchange could be lost if the exchange closes its doors or suffers a hack. Indeed, this has happened already with Mt. Gox. The Japanese exchange was one of the oldest trading platforms for Bitcoin until it was hacked and investors lost millions in value.
The Debate Over Bitcoin’s Future
As you can imagine, the inherent characteristics of Bitcoin are what fuel the debate over its future. As a case in point consider the issue of scaling. Bitcoin must become faster at processing transactions if it every hopes to compete with other types of payment processing like major credit cards. Developers have created solutions like the Lightning Network to address this problem.
There are many so-called Bitcoin evangelists like Roger Ver who specialize in the creation of a rosy picture for the future of all digital tokens. This has created a sentiment among cryptocurrency investors that envisions a future where the market capitalization of cryptocurrencies could go as high as $5 to $10 trillion in the next five years.
A sample of that type of explosive growth was witnessed during the Bitcoin bull run of late 2017. Investors who had bought in when the token was trading at less than $200 per coin made thousands or millions when the token soared above $18,000. In less than six months most of those gains were gone. It is this type of volatility that tempers the enthusiasm of many traditional investors. It has even prompted some of them to affirm that the long-term value of a single Bitcoin will be closer to $100 than it is to $100,000.
Right now it seems to be the limitations of Bitcoin that are preventing the asset from climbing ever higher as an investment vehicle. Some have even said that the lack of a centralized authority to govern Bitcoin lacks efficiency.
Governments Will Increase Crypto Scrutiny
The decentralized nature of cryptocurrency has always been one of its primary attractions. So has the small amount of anonymity that crypto provides. But these things are a double-edged sword. Those very qualities have encouraged some to use the currency for illicit activities.
The most famous example was the now-defunct Silk Road, a Dark Web marketplace where individuals sold drugs, guns, illegal software, and more. Financing all of those transactions was Bitcoin. Since the raid which put the founder and operator of Silk Road in prison and saw millions in Bitcoin seized, there have been calls for more scrutiny of cryptocurrency transactions.
The other side of the issue is something we mentioned earlier. Governments are not particularly pleased with asset classes that they cannot somehow control. The decentralization of Bitcoin makes them nervous. This prompts calls for government involvement.
Take, for example, the recent ban on ICO ads by Facebook and Google. Those bans were initiated because some coin offerings were simply fraudulent. CryptoSwede ran a series of articles on one such ICO for a project known as Bitnation. There were many red flags that potential investors should have been aware of. When people are scammed, they get angry. They call for justice. This is just one reason government regulators have turned their eyes on crypto.
It is very unlikely that the future of cryptocurrency involves some sort of government takeover. That would invalidate the entire concept. But it is likely that some requirements will be placed on investors that are new to the market.
An example of this would be making cryptocurrency exchanges compliant with FINCEN and Know Your Customer directives. As a point of fact, most crypto exchanges are now requiring new customers to submit to stringent identity verification. This is not necessarily a bad thing, and it could help to legitimize crypto as a real asset.
What can be said for certain about the future of cryptocurrency is that interest in digital tokens and the blockchain technology that supports them isn’t going away. There may come a time when it is no longer possible for anyone to ignore the positive applications of a blockchain-based currency.