Cryptocurrencies have continued to be a significant topic of interest, offering a unique perspective on the future of finance and innovation. Beyond the buzz surrounding their value, these digital assets introduce intriguing concepts and opportunities that are shaping how we think about money.
Together we’ll review what cryptocurrencies are, how they work, why they’re appealing, and what their future could hold.
We’ll start at the beginning…
What Are Cryptocurrencies?
Cryptocurrency is digitized money that isn’t regulated by any centralized system or government. Instead, its records, transactions, and issuance is secured and maintained through cryptography technology.
You also need to understand that there are thousands of cryptocurrencies available for purchase. Each has a different dollar value assigned to it, and many may or may not be accepted as a form of payment for a given good and service.
If you think about it, they’re similar to chips in a casino. At the end of the night, you’ll still need to trade them in for “real” dollars. But as long as the casino is in business, you’ll be able to do so. Thus your casino currency can become “accepted-anywhere” currency as long as it’s funneled through the proper channel(s).
More on this later too…
How Do Cryptocurrencies Function?
If you were confused by terms like “decentralized” or “cryptography”, don’t worry. You’re not alone. There’s plenty of jargon in finance, and the world of digital currencies has brought a slew of its own. But don’t sweat it, we’ll help you understand.
When you go to buy something at a store, you’ll notice you end up paying more than the price tag. That’s because you pay taxes on the item(s) you buy. The government acts as an intermediary in all your transactions. But their involvement also extends into your financial records and currency issuance.
We’ll look at the Internal Revenue Service (IRS) and Federal Reserve (Fed) as examples. The IRS has power to audit the financial records of both individuals and corporations. And the Fed, which acts as the nation’s central bank, can influence interest rates and print money, which can contribute to higher inflation. This can be thought of as centralized, and regulated finance.
Cryptocurrencies have their transactions facilitated and recorded across a network of computers. This network isn’t owned or regulated by any individual, company, or government, which makes it decentralized and unregulated finance.
Cryptography, which has been defined as the “…science of using mathematics to secure information…” is an essential component of cryptocurrency.1 It’s often utilized through blockchain technology, which is a system that functions as a digital ledger recording and verifying all of the encrypted cryptocurrency transactions.2 The cryptography and blockchains eliminate the need for any government oversight.
What’s the Appeal?
Well, the lack of government intervention has certainly been an appeal for some. But that’s also generated one of cryptocurrency’s biggest criticisms. That is, their potential use for criminal activity. However, the lack of governmental involvement has many other, non-criminal benefits for users like:
No time restrictions. Traditional stock markets in the U.S. operate between 9:30 am to 4:00 pm (Eastern Time), and they’re closed on weekends and on an assortment of holidays. Cryptocurrencies, however, can be traded all day, everyday.
Finite amounts of supply. For example, the supply of Bitcoin is capped at 21 million. By limiting the supply, a given cryptocurrency is shielded from the negative impacts of inflation.3
Fewer geographical barriers. Cryptocurrency is universally recognized, and wouldn’t require a currency exchange to pay/collect from someone in a foreign country. This of course also breaks down business barriers. Cryptos have made it easier to expand business dealings into more diverse markets.4
Please Note: Cryptocurrencies like Bitcoin haven’t been met with open arms everywhere. There are many countries including, but not limited to, China, Saudi Arabia, and Bolivia that have banned Bitcoin.5
What Does the Future Hold In Store?
It’s impossible to say for sure what the future holds. And that’s especially true for emerging and volatile assets like cryptocurrencies. However, using history as our guide, we can examine the past and make more educated predictions. And there’s two patterns of history particularly worth paying attention to…
Adoption and advancement.
Remember when we compared them to poker chips? We mentioned the chips wouldn’t be accepted as payment outside the casino. Well, that’s actually starting to change for cryptos on a pretty massive scale:
Talks Of A Governmental Reserve: During a 2024 cryptocurrency conference in Nashville, President Trump revealed a proposal to establish a “national Bitcoin reserve” to preserve any Bitcoin already owned by the government. This announcement has sparked discussions about how such a move might influence Bitcoin’s market value and what it could mean for the future of government involvement in digital asset management.6
ETF Growth: The US market for cryptocurrency exchange-traded funds (ETFs) has seen explosive growth, with Bitcoin and Ethereum leading the charge. Earlier in 2024, it was reported that there was a combined market value of more than $78 billion for Spot and Futures Bitcoin ETFs and $7.81 billion for Ethereum ETFs.7
Anticipated Growth In Other Areas: In 2024, the cryptocurrency mining sector was valued at $2.45 billion, with forecasts predicting a sharp rise to $8.24 billion by 2034. This upward trajectory represents an estimated annual growth rate of 12.9% over the next decade.8
Surges In Value: While prices can certainly be volatile, many Cryptocurrencies have achieved astonishing feats since their inception. Cryptocurrencies such as Bitcoin have recently experienced unprecedented growth, soaring beyond $90,000 in value. Moreover, Ethereum coins have also hit and maintained valuations in the thousands with their own recent surge in price.9
How Should You Handle This?
Once upon a time, cryptocurrencies may have been written off as fad. But there’s no denying their significance now. With staggering market capitalizations, revolutionary advantages, and large-scale adoptions, cryptocurrencies have taken the world by storm.
We at Crafted Finance would be happy to continue to discuss the ever-changing landscape of cryptocurrencies. If you have any further questions feel free to schedule a complimentary consultation with our team.
Sources:
1.https://csrc.nist.gov/glossary/term/cryptography
2.https://www.pwc.com/us/en/industries/financial-services/fintech/bitcoin-blockchain-cryptocurre
3.https://www.coindesk.com/tech/2021/03/10/valid-points-why-ether-doesnt-need-a-supply-cap-t
4.https://www.nasdaq.com/articles/the-benefits-of-using-cryptocurrency-2017-02-27
5.https://www.investopedia.com/articles/forex/041515/countries-where-bitcoin-legal-illegal.asp
6.https://www.cnbc.com/2024/11/12/trump-announces-bitcoin-reserve-plan.html
8.https://www.precedenceresearch.com/cryptocurrency-mining-market
9.https://finance.yahoo.com/news/why-bitcoin-ethereum-dogecoin-surging-222343060.html
