Does the future belong to cryptocurrencies or are they just smokescreens generated by financial players? Here is our point of view on this subject.
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Bitcoin, Ether and other cryptocurrencies are on everyone’s lips. They promise fantastic increases in value and, in times of rising inflation, also an independent financial investment.
The crypto-finance industry has emerged
Bitcoin has been around for over 10 years – the most valuable and important cryptocurrency. It started out as a romantic vision of a world without banks, you could get it for pennies.
Today, the price hovers between $30,000 and over $40,000. A whole crypto-finance industry has emerged, with professional investors even using a Bittrex crypto bot to automate trading.
These values arise because they are recorded in a gigantic, decentralized split logbook – a distributed ledger – in which all transactions ever made are recorded from the first coin to the present day.
Blockchain: constantly evolving accountants
An algorithm has been programmed to ensure that there is only one valid logbook per blockchain of a widely accepted cryptocurrency.
Among all network participants, the accountant who continues to write the community logbook changes constantly, for example, every 15 minutes.
The blockchain is considered inviolable
To determine whose turn it is to keep the book, the current last link in the chain ends with a cryptographic puzzle whose code can only be cracked with enormous computing power.
Whoever solves the crypto puzzle must first write the next block, hence the name blockchain. Due to the decentralized procedure, the blockchain is considered tamper-proof.
Cryptocurrencies escape the influence of government monetary policy
Thanks to the blockchain, trust can be established between the various players in the market, which with conventional currencies can only be created by a central authority, a central bank.
This means that cryptocurrencies are completely beyond the influence of government monetary policy. Also, in theory, banks are no longer needed to transmit central bank currency like Euros or Dollars, called fiat money, to the people.
Because it is programmed into the blockchain protocols of Bitcoin and many other cryptocurrencies that only a limited amount of money can be mined in total, digital currency is also considered particularly safe against inflation.
No wonder Bitcoin was the first cryptocurrency to be developed over a decade ago as a direct result of the global financial crisis.
But how sustainable are cryptocurrencies really?
According to estimates, the Bitcoin infrastructure already emits as much as the entire country of Argentina.
In an article in the journal Nature, the researchers point out that Bitcoin emissions alone will cause humanity to miss even the 2 degree climate target.
However, the carbon footprint of the fiat financial system infrastructure is missing here for comparison. And Ethereum and other smaller blockchain networks are already working to make their system more climate friendly.
Who has access to cryptocurrencies?
Investments in cryptocurrencies are open to everyone. It does not require a securities account, in theory not even a bank account.
All you need is a computer or a smartphone to log in to the blockchain with an individual user ID, pseudonym and buy cryptocurrencies.
Applications for this are offered by many larger and smaller exchanges, the most well-known being Binance and Coinbase, which recently completed a billion-dollar IPO in the United States.
Anyone who has invested in cryptocurrencies in recent years could get rich – but a lot of things can go wrong too.
Who Regulates the Crypto Provider Market?
So far, there is little to no regulation for crypto providers – even though they have long been offered in an international marketplace similar to mainstream financial products and are becoming increasingly complex.
For a long time, there are not only Bitcoin, Ether, Cardano, Dogecoin and many other cryptocurrencies, but also stablecoins, for example, which are linked to real assets such as foreign currencies or stocks.
More and more options and derivatives, complex crypto-financial products, are also being traded. Recently, US authorities shut down the Coinbase exchange when it wanted to introduce high-risk crypto consumer loans.
Are criminals the main users of cryptocurrencies?
Bitcoin has become notorious as the currency of the darknet. However: the prejudice of a criminal use of crypto-currencies is hardly tenable with regard to empirical figures.
The “2021 Crypto Crime Report” shows a decrease in cryptocurrency-related crimes, moreover, the share of illegal activities is a relatively small share compared to the traditional financial system, according to the report.
Cryptocurrencies probably don’t have a future as a mainstream means of payment
Experts agree that cryptocurrencies such as Bitcoin and Ether will probably never become mainstream means of payment in our daily lives, at least not in countries with stable and reliable currencies.
Rather, they perform the function of bonds and gold – they are speculative investments that are worthwhile over a long period of time – as long as enough people believe in them.