The Future Of Cryptocurrency in 2022 and Beyond

Cryptography is used to generate and control cryptocurrencies, which are digital currencies that are created and managed using advanced encryption techniques. With the creation of Bitcoin in 2009, cryptocurrency went from being a theoretical concept to (virtual) reality. While Bitcoin grew in popularity throughout the years, it drew substantial investor and media interest in April 2013, when it reached a new high of $266 per bitcoin after soaring 10-fold in the previous two months. At its peak, Bitcoin had a market value of almost $2 billion, but a 50% drop soon after provoked a heated debate over the future of cryptocurrencies in general, and Bitcoin in particular. Will these alternative currencies eventually replace traditional currencies and become as common as dollars and euros? Or are cryptocurrencies just a craze that will fade away soon? Bitcoin holds the key to the solution.

The Future of Cryptocurrency

As institutional money enters the market, several economists foresee a significant shift in crypto. Furthermore, there is a chance that crypto will be listed on the Nasdaq, which would provide legitimacy to blockchain and its usage as a substitute for traditional currencies. Some believe that all cryptocurrencies need is a validated exchange-traded fund. Although an ETF would make it easier for consumers to invest in Bitcoin, there must still be a demand for cryptocurrency, which may not be generated automatically by a fund.

Understanding Bitcoin

Bitcoin is a decentralized currency that uses peer-to-peer technology, allowing the network to perform all operations such as money issuance, transaction processing, and verification collectively. While decentralization protects Bitcoin against government manipulation and meddling, it also means that there is no central authority to ensure that things function smoothly or to guarantee the value of a Bitcoin. Bitcoins are created digitally through a process known as “mine,” which necessitates the use of powerful computers to solve complex algorithms and crunch numbers. They are currently created at a rate of 25 Bitcoins every 10 minutes and will be capped at 21 million in 2140, according to predictions.

These characteristics distinguish Bitcoin from fiat currencies, which are backed by the government’s full faith and credit. The issuance of fiat currency is a highly centralized process overseen by a country’s central bank. While the bank restricts the amount of currency printed to meet its monetary policy objectives, there is no theoretical limit to the amount of money issued. Furthermore, local currency deposits are usually protected by the government against bank collapses. Bitcoin, on the other hand, lacks such infrastructure. A Bitcoin’s worth is entirely determined by what investors are prepared to pay for it at any one time. Clients with Bitcoin balances also have no recourse if a Bitcoin exchange goes out of business.

Bitcoin Future Outlook

Bitcoin’s future prospects are a hot topic of discussion. While so-called crypto-evangelists abound in the financial media, Harvard University Professor of Economics and Public Policy Kenneth Rogoff claims that the “overwhelming sentiment” among crypto supporters is that the total “market capitalization of cryptocurrencies could explode over the next five years, rising to $5-10 [trillion].”

He claims that the asset class’s historical volatility is “no reason to panic.” Nonetheless, he tempered his optimism, as well as that of the “crypto evangelists,” who see Bitcoin as digital gold, calling it “nutty” and predicting that its long-term value will be “more likely to be $100 than $100,000.”

Bitcoin’s utility, unlike actual gold, is limited to transactions, according to Rogoff, making it more prone to a bubble-like collapse. Furthermore, the cryptocurrency’s energy-intensive verification procedure is “vastly inefficient” as compared to systems that rely on “a trusted central authority like a central bank.”

Should You Invest in Cryptocurrencies?

If you’re thinking about investing in cryptocurrencies, you should approach your “investment” in the same way you would any other extremely speculative business. In other words, accept the possibility of losing the majority, if not all, of your investment. A cryptocurrency, as previously established, has no fundamental worth other than what a buyer is prepared to pay for it at any given time. This makes it extremely vulnerable to large price movements, increasing the chance of a loss for an investment. On April 11, 2013, for example, Bitcoin fell from $260 to around $130 in a six-hour period. If you can’t handle that level of risk, you should explore investments that are more suitable. While opinions on the merits of Bitcoin as an investment remain divided — advocates point to its limited quantity and expanding usage as value drivers, while sceptics see it as just another speculative bubble – a cautious investor would do well to shun this argument.