The Ultimate Easy Introduction to Cryptocurrencies
The current state of cryptocurrencies, while having come a long way, continues to have a certain Wild West feel to it. A high number of people and organizations have jumped in to get a piece of the action. It’s chaotic, it’s risky, it’s exciting, and it’s rapidly changing.
There’s little doubt that the idea of new currencies without the need for banks, governments, and other intermediaries is disruptive and impactful to the status quo. This notion makes many exhilarated, and more than a few quite uncomfortable.
Are Cryptocurrencies Money, Investments, Both, Or Something Else?
Cryptocurrencies, commonly abbreviated to cryptos, have value because we say they do. That’s the core thesis of contemporary money. Provided we’re prepared to accept it as payment, there’s a steady supply, and that it can be a store of value, then that’s just enough to make it workable.
In the few short years since the original crypto, Bitcoin, emerged, thousands of alternative cryptocurrencies, or altcoins, have surfaced. People are using these altcoins to support, manage, buy and sell all types of products and services. Cryptos are also being used simply as investment assets. Where for example, people to try to buy low, hold, and then sell high. Recently, it seems that crypto is being increasingly viewed this way, rather than its original intent as a medium of exchange.
Cryptos are being used in creative ways to raise capital, manage digital assets, support innovative processes and businesses, and even disrupt traditional financial institutions. We must acknowledge, too, that an entire industry of illicit uses, such as payment for contraband, has also emerged.
One measure of the maturity and acceptance of cryptocurrencies into the mainstream, are the number of traditional financial organizations beginning to support them. From JP Morgan, Chase, to PayPal, Wells Fargo, and Goldman Sachs, there’s a recognition that cryptos have become too important to ignore.
Cryptocurrencies Are Causing Anxiety
Governments are slowly grappling with the implications of crypto. Responses range from all out banning, to those making crypto a national currency. Countries including China, Bangladesh, Iraq, and several others have implemented absolute bans. Remarkably on the opposite end, El Salvador became the first country to declare Bitcoin legal tender. In addition, a number of countries such as China, Britain, and Sweden are experimenting with the creation of their own crypto-like currencies. It would also come as no surprise, too, that regulation in many countries is being actively explored.
While Bitcoin is so often considered synonymous with cryptocurrency, and for good reason, it’s by far the largest of the bunch by market capitalization, the altcoin ecosystem has grown to thousands in just a few years. Ethereum is the second largest. After Bitcoin and Ethereum, there are thousands of altcoins, with names such as Litecoin, Ripple, Cardano, Polkadot, and Stellar. Each offers a unique proposition, some such as Ethereum, Solano and Ergo use their cryptocurrencies to enable compelling application platforms. Others support cross-border payments, voting, and digital assets. With thousands of altcoins in circulation, many will fail and a lot more will emerge. Any consolidation in the crypto marketplace seems far away. This makes it ripe for speculation, and ultimately a high risk environment for participation and investment.
Nevertheless, despite its high risk, cryptos are generating significant amounts of innovation, and attendant industries in every part of the world. For example, in support of rapid growth and interest, there are a growing number of exchanges that enable participants to buy and sell cryptos more easily. There’s a whole new industry of developers and service providers for applications being built on crypto called distributed apps or dapps. And most notably, recently many innovators have been discussing the emergence of the next generation of the internet, called Web3. This would enable individuals to have an ownership stake in Internet solutions and greater power over their personal data. Web3, if it comes to pass, would run on blockchain technology, the underlying system that makes cryptos function.
The Future Of Cryptocurrencies
Finally, the qualities that make crypto so compelling, such as anonymity, an absence of oversight, also provides it with the perfect use cases for criminals. In particular, cyber criminals have been choosing crypto to receive their ransom for cyber crimes, appropriately named ransomware attacks. In addition, hacking and fraud are not uncommon challenges.
Despite the high risk of cryptos today, the potential benefits are driving a great deal of enthusiasm. Without a doubt, cryptos are a disruptive force and in the years ahead, may be–and I emphasize may here–an important participant in the world’s economy.
Time will tell.