When tracing the history of cryptocurrency we go back to 2009. 2009 is when Bitcoin came onto the scene and it is considered to be what brought in the new age of blockchain and cryptocurrencies. So cryptocurrencies have not really been around for that long. Interestingly, today there are over 4000 different cryptocurrencies in existence. A lot has been happening lately and it is getting some people to question the longevity of cryptocurrencies. In this article, I look at some of what has been happening and summarize what I think the future holds for cryptocurrencies.
Bans Are Still A Common Occurrence
Most governments are still averse to the adoption of cryptocurrencies. Here in Zimbabwe government is still to officially accept the use of cryptocurrencies. When the RBZ Sandbox concept was unveiled many thought cryptocurrencies would be included but they were not. In China, they recently banned cryptocurrency trading. In Iran, they also recently suspended cryptocurrency mining till sometime end of September. Tesla, which was now accepting payments in the form of cryptocurrency, recently said it would no longer accept such payments. In countries such as Columbia and Russia, cryptocurrency is still considered illegal. All these dynamics are worth noting because they help us understand some things. Why is it still like this though?
Concerns On Cryptocurrencies
The bans, the suspensions, and criminalizing of the cryptocurrency use are not just random. There are reasons behind why such decisions or policies are put in place. There are concerns regarding criminal activities. Remember cryptocurrencies work using blockchain technology which entails decentralization, anonymity, and immutability. This means people can anonymously make payments to one another and no one would be able to trace. Thus transactions for illegal activities can be easily made. Criminal conduct such as money laundering and tax evasion can also be done effortlessly using cryptocurrencies.
There is also another concern on negative environmental impacts. The mining of cryptocurrencies consumes extremely high amounts of power. The reason why Iran recently suspended cryptocurrency mining was because of that very reason. There were now incessant power outages and they were being attributed to cryptocurrency mining. Power consumption and negative effects on the environment were also the reasons why Tesla discontinued cryptocurrency payments. Clearly, these are notable reasons why some governments are still heavily opposed to the use of cryptocurrencies.
There have also been cases where founders of cryptocurrencies dupe adopters of their cryptocurrencies. We have heard several accounts of cryptocurrency founders either just vanishing into thin air. At times it could be scenarios where they cite questionable reasons like forgetting their log in details. These are also concerns that make some governments ban cryptocurrencies to protect their citizens from scams. So it is a given that there is a host of valid concerns that must be addressed.
The Highs And Lows
The recent moves by China and Tesla, amongst other factors, led to a significant fall in the value of Bitcoin. The value of Bitcoin is extremely mercurial, just like any other cryptocurrency. I consider this to be normal; no wonder cryptocurrency is considered volatile. In less than a day, the value can plummet significantly. Cryptocurrency is highly speculative at best and these issues add more concerns to the efficacy and future of cryptocurrencies. However, I think it is more or less like the traditional fiat-based financial system. High and lows are literally normal and the same should be expected for cryptocurrencies; though of course cryptocurrencies seem riskier.
Will Cryptocurrencies Replace Fiat Currencies?
This is an interesting question moving forward. Just by looking at the characteristics of cryptocurrency, you would expect governments to adopt them. Cryptocurrencies provide a hedge against inflation and allow global transactions in a much faster, easier, and more reliable way. These are some of the many reasons why it would be a good thing to adopt currencies as the main legal tender. However, I do not see cryptocurrencies replacing fiat currencies.
As much as a hedge against inflation is good for the ordinary person, governments will not really want that. Ruling or governing elites benefit a lot from inflation for your own information. Plus they would not want a scenario where they have no control over the financial system. Cryptocurrencies are decentralized whereas there is a central bank that would want control. Already you can see the contradiction. Thus I feel a future with cryptocurrencies having replaced fiat currencies is highly unlikely.
The future of cryptocurrencies is uncertain for the most part. There are so many moving parts and so many variables which is why cryptocurrencies are still a contentious issue. In the US the IRS recently indicated they will now monitor cryptocurrency transfers over US$10000. This is just an example of how there are still so many issues to be ironed regarding cryptocurrencies. The bottom line, at least in my understanding, is that cryptocurrencies are here to stay.