What does the future of cryptocurrency look like?

October 2008 saw the release of a finance paper claiming a disruptive idea - people sending online payments directly to each other without an intermediary organisation like a bank. The paper explained the decentralised peer-to-peer network, which makes online transactions a lot more transparent than they were currently.

Since then, cryptocurrency has become a global phenomenon, many hailing it as the future of the financial world. However, there are still many worries and concerns regarding this shadowy technology.

This blog aims to demystify cryptocurrencies and illustrate why they have become so popular, but also look forward to the potential future of cryptocurrencies.

Creation of cryptocurrencies from the beginning

Cryptocurrency is a type of digital currency that uses an online ledger to secure the financial transactions involving the currency. You can think of them as monopoly chips or arcade tokens. You must buy these currencies with actual money and then use them for accessing goods and services.

The first cryptocurrency was Bitcoin, based on Nakamoto’s idea and established in 2009. One Bitcoin was valued at just 39 cents in 2010, but the price hit nearly $65,000 per coin in April 2021, giving Bitcoin a total market capitalisation of more than $1 trillion.

Thousands of new cryptocurrencies have been created in the last decade, with Ethereum and Dogecoin hitting the headlines in recent weeks as their prices surge higher.

A fringe idea to mainstream acceptance

Paysafe.com conducted a survey that revealed that 50% of its participants were comfortable making with cryptocurrency payments. Equally, 43% of its merchant participants were already accepting cryptocurrency payments. Another 17% planned to do so in the next two years.

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What is making these cryptocurrencies so popular? There are several reasons to explain this.  are far from being limited.

Here are a few factors that are contributing to their popularity:

•     Many people like the fact that cryptocurrencies use a decentralised system that removes the function of banks across the world. This prevents forex fluctuations as central banks tend to reduce the value of money through inflation.
•       Cryptocurrency supporters already believe that this type of currency will dominate the financial world in the future. Therefore, they are scrambling to buy them now before they become more expensive.
•       Cryptocurrencies use blockchain technology to maintain a decentralised processing and recording system. Blockchain has become immensely popular in the financial world and in other sectors like healthcare and automation.
•       Governments across the world are setting up regulatory frameworks and legislation to monitor cryptocurrencies. These regulations have reduced people’s fears that cryptocurrencies are a fringe element and increased their acceptance.

Challenges for the popularity of cryptocurrencies

The benefits of cryptocurrencies aside, many people are still wary of them for a good reason. A 2017 Paysafe.com report suggests that security and privacy are the biggest concerns regarding the use of cryptocurrencies. 25% of the survey participants didn’t trust cryptocurrencies at all.

A larger part of this distrust stems from the lack of familiarity with the cryptocurrency system. While demystifying the system can encourage a wider acceptance, it wouldn’t counteract the problem of volatility.

Cryptocurrencies can be very volatile for regular use. For example, the value of Bitcoins rose by 2000% against the US Dollar in 2017, only to lose two-thirds of its value a year later. Such widespread fluctuations can crash stock markets and cripple economies.

How does the road ahead look?

Over the recent years, Stablecoins are being touted as the potential successors of cryptocurrencies. This currency is backed by stable assets such as gold, or conventional currencies, or both.

These Stablecoins provide the best of both worlds. They have the benefit of the decentralisation characteristic of the blockchain ecosystem because they are essentially a type of cryptocurrency. However, they are less prone to wild fluctuations in their value because they are backed by conventional assets.

Stablecoins are just the beginning. With developments moving fast in the cryptocurrency world, you can expect more game-changing technologies in the future.

This article is written by Sweha Hazari.