In the last few months, cryptocurrencies became more and more popular among people. It is not only the investors who buy them but also the people who have no idea about investing. After the start of the Coronavirus pandemic in March 2021, all the markets in the world had a massive drop and the cryptocurrency market was the one which recovered the best from this drop.
In the last few months, starting from the start of 2021, cryptocurrency owners made big amounts of gains. In addition to their investment capacity, cryptocurrencies also have the potential to replace fiat money in the future. We already have seen some companies like Tesla accepting Bitcoins as a payment method and some online casinos where you can deposit cryptocurrencies. If you are interested, here is a brief Guide for Crypto Casinos.
Newer Technology with three main benefits
Cryptocurrencies use newer technology than traditional banks which is called blockchain systems. In the blockchain system, every transaction is recorded to a public ledger. However, in this ledger, the parties are anonymous, which means that it is impossible to understand who sent the cryptocurrencies to whom. It is secured by an encryption system which reduces the chances to get hacked to a minimum.
Moreover, unlike the traditional online banking systems, the transaction time between cryptocurrency owners is really small and it doesn’t involve a third party middleman in the transaction which means that there won’t be any extra transaction fees that will be paid.
Finally, most of the cryptocurrencies are decentralized, which means that no company or institution holds the power of cryptocurrencies. This can be considered as an advantage, however, in case of any hacking, it is hard to reverse it or hold anyone responsible for it.
Future of Cryptos: Investment Tool or Money?
After cryptocurrencies gained popularity, more and more people started to talk about them. Some people believe that cryptocurrencies are great investment tools since they are constantly growing because the most basic idea behind making a financial investment is buying a good and then selling it at a higher price than you bought and cryptocurrencies are great on this.
On the other hand, some traditional investors think that cryptocurrencies are not reliable or legit investment tools. There are several reasons behind this idea. First, people think that the cryptocurrency boom that is happening right now is a “bubble” like the Tulip Bulb Bubble that occurred in the 1630s because the prices are rapidly growing.
However, in the current rally, we have seen some big companies like MicroStrategy or Tesla investing in Bitcoins. If this happens, those companies are more likely to keep on applying their strategy for a long time, not for 2-3 months.
Moreover, traditional investors also say that cryptocurrencies provide neither real capital nor income and they don’t produce value. In the stock market, when investors invest in a stock, they basically provide that company capital and in return, they receive dividends like they are a member of the company.
Yet, when you make a forex trade with really high leverages, it is not also creating any value and it has been in our life for years so it is crucial to blame cryptocurrencies because they don’t produce any value.
Furthermore, some people think that cryptocurrencies are the future form of money thanks to their high transaction speeds and the transactions are happening peer to peer, meaning that it doesn’t require a middleman. However, in order to act like the fiat money that we use in our daily life, cryptocurrencies have achieved certain requirements.
Can Cryptos become Money?
In economic theory, the money needs to have 3 functions: medium of exchange, store of value and unit of account. In order to be an effective medium of exchange, a good or service must be obtained for the money.
We started seeing this lately, like Tesla or fine arts gallery Soetheby’s and some online casinos accepting Bitcoins or other cryptocurrencies as payment methods. Considering that this is a process that won’t happen in a blink of an eye, it isn’t wrong to call those companies and institutions one of the pioneers of this transformation.
In addition to this, in order to be money, an asset needs to have a stable store of value since the value is constantly being transferred between economic actors. However, we do see that the cryptocurrency market is highly volatile, meaning that the prices of cryptocurrencies change in big percentages.
Because of this, the value of a good or the amount that you own changes constantly and doesn’t provide a strong store of value. At this point, stable coins come up. Stablecoins, like e-Euro or Tether USD, are coins whose values are fixed to the fiat money that they represent. They still have a similar system to cryptocurrencies but their values don’t fluctuate as much as cryptocurrencies.
Lastly, money serves as a unit of account which is a common measure to value goods or services. Since the prices are constantly changing in big percentages, sellers need to update their prices regularly. This can cause confusion for both the buyers and sellers since 1 Bitcoin is more than $50.000 and $1 has a Bitcoin value with nearly 6 decimal points. So, at this point, again the stablecoins are more likely to be the future form of money.
Worst Case Scenario for Cryptos
Since the transactions are anonymous and the cryptocurrencies are decentralized, governments are seeing them as a threat. Although it isn’t created for it, it can be used in any kind of illegal activity like terrorism, drug dealing, or money laundering. In the future, we may see governments applying strict regulations on cryptocurrencies.
In contrast, this can also be a good thing because when the governments start to get concerned about cryptocurrencies, it increases the cryptocurrencies’ validity and legitimacy which has an important role for the cryptocurrencies to achieve their future agenda.
As a result, we can’t deny that nowadays cryptocurrencies are a part of our lives and it looks like we are going to talk more about them in the future.
They are both useful investment tools with highly profitable returns and candidates for the future form of money. Bitcoin is the first and the one with the biggest volume but there are lots of them which can be the future form of money.
This transformation is a long process and in order to benefit most from it, watching the decisions of big institutions like governments and corporates will be the key for the ones who would like to take advantage of the cryptocurrencies.