Cryptocurrencies are one of those dividing topics that everyone has an opinion on. Whether positive or negative, these opinions are rarely based on facts and reality. Are cryptocurrencies going to save the world, or are they elaborate scams that millions of people simply fell for?
These extremes are both present in the minds of the general public. Just like with everything, they have their pros and cons, but they aren’t necessarily good or evil. They are a revolutionary idea that has noble ideas at their root.
While even the professors with PhDs can’t really predict how cryptocurrencies will impact the economy in the long run, they make some guesses. While I’m no professor, I’ve been a part of some crypto projects for a couple of years, and I will try to give my opinion on the current state of crypto and its effects on the economy.
The global crypto market was worth 1.16 trillion dollars on the day when this article was written. Even if you aren’t into technology or finance, cryptocurrencies are still interesting to learn about, as they are one of the trends that everyone is talking about. More importantly, having basic knowledge of crypto will potentially protect you from becoming a victim of online scams.
Cryptocurrencies Explained
The concept of “cryptocurrencies” can be easily explained by saying that they are digital currencies that are unrelated to any bank or government. There are a lot of technical aspects and buzzwords that people often use to explain them. However, this isn’t necessary if you want to understand their economic aspect.
Overall, the blockchain, a concept that I will talk about in the section below, is a decentralized system that verifies transactions. The crypto in “cryptocurrency” comes from cryptography which is what is used to make these transactions secure.
The idea of digital currency has existed since 1983, and it was first realized in 1995 by a company called DigiCash. However, this project was a disaster, as the company declared bankruptcy three years later. On the other hand, the idea continued to live on, and people persisted in creating something of value that the banks and governments couldn’t interfere with.
In 2009 we had finally gotten our first real cryptocurrency which was Bitcoin. If you have basic knowledge of the history of Bitcoin, you’ll know that it was created by an anonymous person under the alias Satoshi Nakamoto, that suddenly disappeared from the Bitcoin community a few years after Bitcoin was released.
After almost 15 years after the creation of Bitcoin, there are more than 8000 cryptocurrencies that are active and more than 300 million users worldwide. No matter what’s your opinion on this trend, it has become a significant part of the internet.
Some cryptocurrencies are supposed to be units of exchange for goods or services, while others are used in specific software or crypto games.
Blockchain
Blockchain is a digital ledger that contains records linked together using cryptographic hashes, and each record possesses data. This technology allows data to be stored across a network of computers, and each one of them has confirmed and authenticated this data.
This technology became popular and most commonly used in the finance sphere, yet it can be applied to a wide variety of industries.
If you’ve decided to invest in cryptocurrencies, it’s important to keep track of what chains they support. If you, for example, buy Polkadot on an exchange and decide to transfer it to an extension wallet without properly setting it up or making a mistake, you’ll likely lose all of the cryptos that’s been a part of the transaction.
Blockchains that are used by a variety of projects are:
- Ethereum
- Binance Smart Chain
- Polkadot
- Solana
While there are some technical differences between each of these blockchains, many projects are built on each of them. Many Play-To-Earn games are built on BSC, and many popular NFT projects are on Solana or Ethereum. However, each of these blockchains allows developers to create applications independently.
The price of tokens is tied to the activities on the market and on the updates and activities made by its developers. One of these examples is Solana, which suffered both minor and more significant crashes after multiple outages.
Projects that use these blockchains to create their projects have to choose carefully which one is the most suitable for their needs. Ethereum is known for having large transaction prices, and as mentioned, Solana can be unreliable.
The Current State of Cryptocurrencies and Economy
Many people have gained financial independence through their investments in cryptocurrencies. However, a lot more people have suffered significant financial losses while they were trading crypto. During bull markets, people are often excited to jump on the hype train, yet they often completely miss the station.
The idea of a currency not connected to any banks or governments sounds great, but past examples have shown that its price isn’t completely autonomous. World events such as the war in Ukraine or crypto regulations in large markets, such as China, have impacted the price of cryptocurrencies for the worse.
Both Russia and Ukraine have used some forms of crypto fundraising during the conflict. The Ukrainian government received more than $56 million in crypto donations, which shows the philanthropic nature of crypto enthusiasts.
There are countries that have done their fair share to recognize Bitcoin and other digital currencies as legal tender. El Salvador became the first country to adopt this, and soon after, Cuba followed its example to recognize and regulate cryptocurrencies.
Across the European Union and the US, cryptocurrencies are legal to use, and they are regulated by regional and state laws. The taxes on them can vary from 0% up to 50% and there are licensed exchanges that do this.
Challenges Crypto Faces
Even though there are many benefits to cryptocurrencies, there are just as many problems and concerns about their use and their widespread adoption. Because it’s anonymous in its essence, cryptocurrencies are often used for illegal transactions and activities.
An online black market called Silk Road was using cryptocurrencies for transactions between users. This website was closed in 2013, and there’s a constant struggle by the authorities to shut down new services that aim to replace it. Other criminal entities such as drug cartels and money laundering are also known for using cryptocurrencies.
Their volatility is another serious downside as they can experience significant increases and decreases in price. This makes crypto often unreliable and attracts people that want to make quick financial gains, often resulting in them losing money. There are cryptocurrencies called stablecoins that have a value equal to USD.
These blockchain-based dollars are supposed to be backed by real dollars, yet their prices sometimes crash. This is one of the most important reasons why we haven’t introduced cryptocurrencies as a standard form of payment. Their prices can have significant variations over the course of 24 hours.
Various countries are looking for alternatives for both crypto and fiat currencies and they see the solution for this in the form of digital cash. This is known as central bank digital currency or CBDC, and they see this as a form of digital currency that has the benefits of Bitcoin but is considered less risky.
Countries that have a significant influence on the global economy are currently researching this concept, and eleven countries have already launched some form of CBDC. Even though China banned cryptocurrencies, they are developing their CBDC, and we might see it released to its population by the end of the year.
While even the poorest countries have banks, many people don’t have access to them. Cryptocurrencies can be transferred using smartphones which makes them a more inclusive way of banking system than the traditional.
Crypto is Influential on the Future of the Economy
Nobody can predict whether cryptocurrencies are going to experience widespread adoption but we can confidently say that they are impactful on the economy. A market that has trillion dollars worth isn’t something that can be taken as a joke.
There are some controversies surrounding crypto, from the mysterious creator of the first cryptocurrency, to its immoral and illegal uses up to recent scam projects. However, there’s a very high number of people that are looking for ways to implement blockchain technology and cryptocurrencies into our daily lives to benefit us.
Mining cryptocurrencies is also a significant ecological concern, but the majority of people involved in it are looking for ways to reduce the negative impacts of mining.
