What Is The Point Of Cryptocurrency?
January 12 2022 - 4:32AM
Finscreener.org
The digital era has changed many
aspects of our lives, transforming the ways we access information
and facilitate communication throughout the world. This widespread
digitalization has made its mark on money as well, with the
emergence of
cryptocurrencies. But
what is the point of cryptocurrency, you might ask?
The rise of cryptocurrencies is
emblematic of the digital era in many ways: after all, money is an
abstraction of value exchange among people, and cryptocurrencies
have the capabilities to track, record, and relay value exchange on
a larger scale than ever. These coins are run on decentralized
collective networks and are accessible from anywhere, 24/7. In
other words, cryptocurrencies are universally accessible digital
assets, fit for a digital world.
Of course, as speculative assets,
cryptos come with as many risks as benefits. In this brief article,
we will take a look at why people are drawn to the
risky-but-profitable world of digital assets and how it all got
started.
The Rise of Cryptocurrencies
In order to understand the
attractiveness of cryptocurrency markets for investors, one needs
to look no further than the evolution of Bitcoin, the world’s first
cryptocurrency. Bitcoin was an innovative but barely known digital
asset when it first emerged over a decade ago, with a single BTC
worth less than pennies. But as information about Bitcoin’s many
qualities, such as the capability to make instant transactions
across borders, the ground-breaking blockchain-based security
mechanism and the relative ease of use, began to make rounds, its
value dramatically increased, as you can see for yourself on
the
BTC/USD trading pair
chart.
Bitcoin recently became one of
the best-performing assets of the decade, awarding investors with
higher returns than any other asset type in existence. In an era
marked by uncertainty and shrinking opportunities, Bitcoin and
other cryptocurrencies seem to promise something the stock market
no longer offers: a genuine
opportunity to build
wealth. In fact, even in
the stock market, Bitcoin and blockchain related companies like
Coinbase Global Inc. (NASDAQ:
COIN) and Marathon
Digital Holdings (NASDAQ:
MARA) have been out-performing many of their
competitors.
Roadblocks Before Cryptocurrencies
Of course, cryptocurrencies
aren’t all puppies and sunshine: one of the major propellants
behind Bitcoin and other digital currencies is
speculation
about their worth in the future.
While these digital currencies have the possibility to make value
transfers less costly and more accessible to demographics around
the world in the long term, the whole cryptocurrency ecosystem is
still in development and there are important steps that need to be
taken before Bitcoin or any other digital currency reaches its full
potential.
The roadblocks before
cryptocurrencies include technical and socio-legal limitations.
Cryptocurrencies are blockchain-based assets and they are facing
certain limits when it comes to scalability, security and
accessibility. For example, the Bitcoin network can only process 7
to 10 transactions per second currently, as opposed to credit card
companies like Visa or Mastercard that process hundreds of
transactions in a second.
Moreover, while large,
decentralized networks like Bitcoin or Ethereum can take advantage
of blockchain-provided security mechanisms, smaller
cryptocurrencies with smaller networks are vulnerable to security
breaches.
The lack of regulation in the
cryptocurrency ecosystem constitutes another problem going further
because the combination of a fruitful market and a lack of
consequences for misbehaving draws scammers to crypto like bees to
honey.
Finally, the inherent
volatility of
cryptocurrencies due to
all the factors we outlined above, make cryptocurrencies risky
investments. Cryptocurrencies can double or triple their value
within a matter of days or weeks, only to come crashing down due to
security breaches, pump and dump schemes or scams, and other bad
press.
So, What Is The Point of Cryptocurrency?
The facts above can be
disheartening for potential crypto investors, but they don’t
present the whole picture: while it is true that Bitcoin and other
cryptocurrencies are still in their development phase, the
crypto ecosystem has been
maturing in recent
years.
The state authorities have
started to take steps to properly
regulate the cryptocurrency
ecosystem and develop
guidelines to protect investors. Technological advances like
Lightning Network prove that scalability issues can be overcome in
the long term.
Even the speculative character
and volatility of cryptocurrencies prove useful for traders as they
make it possible for less wealthy investors to make
huge profits. Of course, one should always be aware of the
risks involved when making crypto investments, but cryptocurrencies
are changing how we conduct business and are here to stay in the
foreseeable future. In fact, as many suggest, we might be
witnessing how the
future of the economy and
business is taking shape
before our eyes through the evolution of cryptocurrencies - and
ultimately, the whole point of cryptocurrency.
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