Author: James Page
Estimated read time: 4 minutes
Publication date: 12th Jan 2022 10:32 GMT+1
The digital era has changed many aspects of our lives, transforming the ways we access information and facilitate communication throughout the world. This widespread digitalization has made its mark on money as well, with the emergence of cryptocurrencies. But what is the point of cryptocurrency, you might ask?
The rise of cryptocurrencies is emblematic of the digital era in many ways: after all, money is an abstraction of value exchange among people, and cryptocurrencies have the capabilities to track, record, and relay value exchange on a larger scale than ever. These coins are run on decentralized collective networks and are accessible from anywhere, 24/7. In other words, cryptocurrencies are universally accessible digital assets, fit for a digital world.
Of course, as speculative assets, cryptos come with as many risks as benefits. In this brief article, we will take a look at why people are drawn to the risky-but-profitable world of digital assets and how it all got started.
The Rise of Cryptocurrencies
In order to understand the attractiveness of cryptocurrency markets for investors, one needs to look no further than the evolution of Bitcoin, the world’s first cryptocurrency. Bitcoin was an innovative but barely known digital asset when it first emerged over a decade ago, with a single BTC worth less than pennies. But as information about Bitcoin’s many qualities, such as the capability to make instant transactions across borders, the ground-breaking blockchain-based security mechanism and the relative ease of use, began to make rounds, its value dramatically increased, as you can see for yourself on the BTC/USD trading pair chart.
Bitcoin recently became one of the best-performing assets of the decade, awarding investors with higher returns than any other asset type in existence. In an era marked by uncertainty and shrinking opportunities, Bitcoin and other cryptocurrencies seem to promise something the stock market no longer offers: a genuine opportunity to build wealth. In fact, even in the stock market, Bitcoin and blockchain related companies like Coinbase Global Inc. (NASDAQ: COIN) and Marathon Digital Holdings (NASDAQ: MARA) have been out-performing many of their competitors.
Roadblocks Before Cryptocurrencies
Of course, cryptocurrencies aren’t all puppies and sunshine: one of the major propellants behind Bitcoin and other digital currencies is speculation about their worth in the future. While these digital currencies have the possibility to make value transfers less costly and more accessible to demographics around the world in the long term, the whole cryptocurrency ecosystem is still in development and there are important steps that need to be taken before Bitcoin or any other digital currency reaches its full potential.
The roadblocks before cryptocurrencies include technical and socio-legal limitations. Cryptocurrencies are blockchain-based assets and they are facing certain limits when it comes to scalability, security and accessibility. For example, the Bitcoin network can only process 7 to 10 transactions per second currently, as opposed to credit card companies like Visa or Mastercard that process hundreds of transactions in a second.
Moreover, while large, decentralized networks like Bitcoin or Ethereum can take advantage of blockchain-provided security mechanisms, smaller cryptocurrencies with smaller networks are vulnerable to security breaches.
The lack of regulation in the cryptocurrency ecosystem constitutes another problem going further because the combination of a fruitful market and a lack of consequences for misbehaving draws scammers to crypto like bees to honey.
Finally, the inherent volatility of cryptocurrencies due to all the factors we outlined above, make cryptocurrencies risky investments. Cryptocurrencies can double or triple their value within a matter of days or weeks, only to come crashing down due to security breaches, pump and dump schemes or scams, and other bad press.
So, What Is The Point of Cryptocurrency?
The facts above can be disheartening for potential crypto investors, but they don’t present the whole picture: while it is true that Bitcoin and other cryptocurrencies are still in their development phase, the crypto ecosystem has been maturing in recent years.
The state authorities have started to take steps to properly regulate the cryptocurrency ecosystem and develop guidelines to protect investors. Technological advances like Lightning Network prove that scalability issues can be overcome in the long term.
Even the speculative character and volatility of cryptocurrencies prove useful for traders as they make it possible for less wealthy investors to make huge profits. Of course, one should always be aware of the risks involved when making crypto investments, but cryptocurrencies are changing how we conduct business and are here to stay in the foreseeable future. In fact, as many suggest, we might be witnessing how the future of the economy and business is taking shape before our eyes through the evolution of cryptocurrencies - and ultimately, the whole point of cryptocurrency.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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