Cryptocurrencies are booming and are being touted as a model for the future. What potential does Bitcoin have?
The future of cryptocurrencies: what does it look like?
Bitcoin, as the most popular representative of the so-called cryptocurrencies, is currently breaking new ground. It has increased its value almost fivefold within the last months and is intensively scratching the $60,000 mark. But is this model sustainable?
The Rapid Rise of Bitcoin in Nigeria and around the world
When Bitcoin entered the money market in 2009, it was actually intended to compete with conventional fiat currencies as a means of payment. So far, that hasn’t succeeded, but as a speculative object, it’s had a steep career.
Acceptance increases continuously
To date, this gamble has caused extremely pronounced volatility. The digital currency has experienced steep rises and immense falls over the past 10 years. But it is now the case that the former far surpass the latter. Bitcoin is no longer only bought by private investors.
Banks and institutional investors are now also investing in the cryptocurrency, whose strong demand lives from the fact that there will only be 21 million of them. The global payment provider PayPal has recently accepted the currency, and Elon Musk’s $1.5 billion deal was also advertised in all the gazettes. So it seems that enough trust could be created so that a large part of the money glut initiated by the central banks ends up in the blockchain.
Blockchain technology exerts great fascination
In principle, a blockchain is a huge database. In this, information is continuously stored, which is managed decentrally. It is administered simultaneously by all those involved, in our case the investors.
Encryption algorithms should ensure that none of the participants subsequently alters or falsifies the data. The blockchain is in contrast to conventional systems in which an administrator can subsequently change data.
Pillar of the digital space
Some theories suggest that society in general, and the financial world in particular, is in the early stages of a crypto evolution. With the blockchain as a pillar of the digital space, it will then be possible to advance entire industries and business models in the mass market.
A central point in the automation of these processes is the security that stored data and information remain unchanged. In a blockchain network, coordination and consensus building do not take place via central instances. Hubs such as banks, stock exchanges and platforms such as Amazon and eBay will become superfluous as control bodies.
Or is it a speculative bubble?
But the pessimists are also appearing, who attest that the cryptocurrencies will only stay for a short time. Bitcoin is repeatedly compared to gold, which is considered a safe haven. Gold is accepted as a single currency around the globe, which is far from the case with Bitcoin.
Bitcoin definitely shows elements of previous speculative bubbles. Above all, the high prices point to this. There are now a large number of resellers. This is usually perceived as a clear indication of bubble formation.
The transactions in the blockchain are largely anonymous. The founders of bitcoin set out to create a currency that would be free from the influence of central banks and whose transactions could not be traced back. These are attractive traits for cybercriminals. It is therefore actually foreseeable that every functioning economic system requires some kind of control.
The energy problem
The consumption of energy when mining cryptocurrencies is immensely high. In the meantime, computing power must be made available that corresponds to the power consumption of the Netherlands, and the trend is increasing. This is why more climate-friendly variants such as BitGreen are now emerging. These promise to reduce the energy required for mining. In addition, it is envisaged that only electricity from renewable sources will be used.
It is still too early to develop conclusive assessments of the future viability of cryptocurrencies. The current boom speaks for a rosy future. Much will depend on whether blockchain technology proves to be stable over time. Even if bitcoin establishes itself as a generally accepted means of payment at ATMs, that would be a step in this direction.
However, skepticism is appropriate as to whether the enormous energy consumption is conducive to meeting the climate targets. In addition, the inflation behavior has not yet been adequately studied.