As alternative investments gain popularity, Bitcoin is a name at the forefront of cryptocurrency conversations. What can we expect the future of Bitcoin to be?

Bitcoin was meant to revolutionize in the financial ecosystem when it was presented to the world a decade ago. But the revolution has barely occurred. Scandals, missteps, and wild price spikes have marked the turbulent first decade of the cryptocurrency.

This year’s slump in the price of bitcoin was followed by a fusillade of criticism. Yet investors and fans of the crypto-currency have doubled their excitement about their future. The coming decade, as such, could prove to be crucial to its survival.

A Very Bumpy Ride

For many of us, the thrilling journey of Bitcoin’s recent phenomenal rise into mainstream media has been inescapable news. For some of us, it may seem like not a day goes by without seeing the rise (or fall) of Bitcoin spurring discussion and debate – with doubters on one side and a growing army of advocates on the other.

Very recently (within the month of February 2021), Bitcoin witnessed an extended slide. Sometime on Tuesday (23rd), Bitcoin tumbled below $50,000 – as low as $45,041 -making it worth less than $900 billion right after hitting the $1 trillion market value milestone for the first time. This descent got experts talking, with some stating that the digital coin’s plunge to 11% in a span of 24 hours should be a warning sign. Many others are not intimidated by the drop and are expecting their champion currency to bounce back in good time.

Just before that though, huge jumps in the market pushed Bitcoin (yet once again) into the spotlight. This, coupled with prominent figures and financial groups weighing in for the cryptocurrency, has many people hoping that things might be different now with financial institutions and the infrastructure as a whole beginning to warm up to the incorporation of Bitcoin as a legitimate currency to be taken seriously. There were sensational developments that stirred the hype on – like Elon Musk’s Tesla Inc. buying a substantial amount ($1.5 billion) of Bitcoin. Microstrategy Inc. had adjusted its convertible debt sale to purchase Bitcoin by nearly half to $900 million. There were many other similar actions throughout the financial landscape that mimic these big moves. One of the biggest trends being seen here is the moving of institutional balance sheets into Bitcoin in order to hedge against inflation.

Other strange and headline-worthy stories help to keep Bitcoin in the limelight, including the recent one in which J.P. Morgan Chase sent blockchain payments into space.

In a way, this volatile pattern of swinging highs and lows isn’t anything new when it comes to the cryptocurrency’s movements, with a history made up of rising value followed by an unstoppable surge of hype, and sudden drops that lead to sheer panic and confusion from flocks of investors and speculators.

This begs the question; just what is going on and should you get in on the action? Perhaps a good point to begin would be to look at the current state of cryptocurrency as a concept.

The State of Cryptocurrency

One fascinating feature of the fast-growing cryptocurrency market is the fluidity of the words used to describe the various items that fall within its ambit. While the different types of what are generally referred to as ‘cryptocurrencies’ are similar in that they are mainly built on the same type of decentralized technology known as inherent encryption blockchain, the language used to explain them varies greatly from one jurisdiction to another. Digital money (Argentina, Thailand, and Australia), virtual goods (Canada, China, Taiwan), crypto-token (Germany), payment token (Switzerland), cyber currency (Italy and Lebanon), electronic currency (Colombia and Lebanon), and virtual asset token (Switzerland) are some of the terminologies used by countries to reference cryptocurrency.

The rise and subsequent retreat of the price of bitcoin, as well as the rush of new cryptocurrencies to the market, have been the focus of recent headlines. Naturally, investors not already in the bitcoin market are curious whether they should get in now or if they have missed the ride. And business owners would naturally wonder whether, to get ahead of a potentially evolving payment environment, they can establish a way to be paid in cryptocurrency while also trying their best to handle the risk management that comes with cryptocurrencies.

The opportunities that cryptocurrencies generate for illicit activities, such as money laundering and terrorism, are also noted by many of the warnings issued by different countries. Some of the countries surveyed go beyond merely warning the public and have extended their money laundering, counter-terrorism, and organized crime laws to cover cryptocurrency markets and require all the due diligence standards levied under such laws to be carried out by banks and other financial institutions that promote such markets. Australia, Canada, and the Isle of Man, for example, have recently introduced legislation to introduce transactions of cryptocurrencies and organizations that promote them under the laws of money laundering and counter-terrorist financing.

Many jurisdictions have gone even further and placed limits on investments in cryptocurrencies, the scope of which varies between jurisdictions. Some (Algeria, Bolivia, Morocco, Nepal, Pakistan, and Vietnam) forbid any crypto-currency operations, in that they prohibit their citizens from participating in any kind of activities involving cryptocurrencies locally. Qatar and Bahrain have a somewhat different approach, as they encourage citizens to do so outside their borders. Some countries place indirect limitations by restricting financial institutions within their borders from facilitating transactions involving cryptocurrencies, while not stopping their citizens from investing in cryptocurrencies (Bangladesh, Iran, Thailand, Lithuania, Lesotho, China, and Colombia).

Evaluating Bitcoin’s Next Decade

The next decade will show its significance in the evolution of Bitcoin. Apart from revolutions within the financial ecosystem, there are a few areas in the ecosystem of bitcoin to which investors should pay careful attention.

At present, the cryptocurrency is placed between being a store of value and a regular transaction medium. Institutional investors, even as governments around the world, such as Japan, have proclaimed it a legitimate means of payment for commodities, are willing to take action and benefit from fluctuations in their costs.

Without technical changes in its environment, the mainstreaming of bitcoin (or, for that matter, increasing its attractiveness as an asset class) as a payment mechanism will not happen. Bitcoin’s blockchain should be able to manage millions of transactions in a short period to be considered a legitimate investment asset or form of payment. Several innovations in its operations, such as the Lightning Network, promise size.

Ripple’s CTO David Schwartz compares bitcoin to Ford’s Model T, along with advancements in bitcoin’s blockchain. The carmaker heralded a transportation revolution, and an entire ecosystem developed to support the automobile, from highways to gas stations. The beginnings of an ecosystem have already taken root in the last couple of years, due to widespread media attention. The environment will likely grow as regulations develop to keep pace.

What are the Benefits?

Cryptocurrency transactions require no intermediary by using the decentralized blockchain technology, which can make transactions cheaper and ensures that no entity can cancel or interfere with a transaction.

For example, an individual who wants to transfer money internationally to a family or purchase a product will usually need an intermediary to convert the currency from one to the other, charging fees for the conversion as well as for the transaction. Depending on how the funds are transferred, there may also be delays.

The transaction will take a few minutes at most with a crypto-currency such as bitcoin, with a single transaction fee. It can also be started using an internet connection from anywhere in the world. This may present the prospect of inexpensive, almost instantaneous transactions for companies that can seamlessly cross borders, which could revolutionize the global payments and remittances industry, while also helping those who are more technologically inclined with personal money management.

Blockchain is still anonymous and has never been compromised, says Steves, since the distributed ledger ensures that on any device in the chain, evidence of every transaction is replicated. There will still be documents showing the right transaction information if even a handful of these has been compromised.

What are the Risks?

Although cryptocurrency possibilities are undeniable, both as an investment and as a transaction currency, there are also plenty of risks to consider. Firstly, there is a drawback to the decentralized existence of cryptocurrencies as the absence of government backing implies no government security. Steves suggests this may mean that in the case of a burglary, the government has no motivation to track down the perpetrator.

And although the blockchain itself has not been compromised, there have been cases of cryptocurrency buying and selling exchange fraud. According to Reuters, hackers stole about US$530 million worth of cryptocurrencies from the Coincheck exchange in Japan in January.

The prospect of government intervention is another risk that may lead to the recent fall in the value of bitcoin. Although countries will probably not be able to shut down a cryptocurrency entirely, they might make trading illegal, Steves says. In January, fears that China and South Korea will do exactly that surfaced, spurring a bitcoin sell-off. If policymakers try to track down taxable currency flows and possibly illegal activity, other levels of control may be placed in place.

For many, the recent drop in prices of some cryptocurrencies, with Bitcoin losing more than half its value since December, makes them more convincing than investments.

But Perlin says it’s hard at this stage to get a grasp on the potential value inherent in the blockchain protocols in terms of long-term potential upside, which makes choosing winners a challenge.

 

What are your thoughts about Bitcoin?

 

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