What the Future of Cryptocurrency Looks Like

Golden Bitcoins atop black keyboard with blue and red graph backgroundSince the announcement of the first cryptocurrency, Bitcoin, just a few years ago, the market for digital currency has expanded tremendously. Recent reports highlight a growth of nearly 900% over the last two years alone, meaning a single Bitcoin rose from $255 to an astounding $2,500. It is hard to deny this exponential increase in value, especially when evaluating cryptocurrency as a viable investment option in addition to its purchasing power in the mainstream economy. However, the future of cryptocurrencies like Bitcoin is on shaky ground for several reasons.

Lacking Regulation

Given its explosive growth, the market for cryptocurrencies has come under fire from several government agencies throughout the world. One of the most alluring benefits of cryptocurrency from a consumer perspective is the fact that currencies in the space are decentralized. This means there is no watchful eye of a local or federal government, nor is there is a major financial institution in charge of creating, distributing, or monitoring cryptocurrency movement. Instead, those who are part of the vast network of cryptocurrency owners and users control transactions and access.

Because a decentralized approach to currency creates concern among large, established governments, talk of regulating cryptocurrencies is now more common than not. Several countries, including the United States and the UK, have welcomed the use of cryptocurrency, albeit with varied enthusiasm. In the US, a handful of states have worked on passing legislation to accept and promote the use of blockchain technology, and the Commodity Futures Trading Commission recently granted approval to LedgerX, a cryptocurrency trading platform, for the purpose of regulating digital currency options. Throughout Europe, governments have encouraged the development of virtual currencies through certain laws and ongoing research, moving more toward regulation in the future.

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In stark opposition to the use of digital currencies, some countries have placed an all-out ban on blockchain technology in the realm of cryptocurrency. Some government leaders have gone so far as to deem cryptocurrency a negative disruption in financial markets, refusing to offer a method for new currencies to take shape within their borders. This trepidation and lacking regulation on a global scale could mean the future of cryptocurrency is limited across international borders.

A Volatile Marketplace

As a decentralized system, all cryptocurrencies are valued based on several drivers, included supply and demand of buyers and sellers, mining efforts in blockchain technology, the difficulty of mining, and perceived value by the public. Because there is no central bank or government regulating the value of cryptocurrencies, the price of digital currencies like Bitcoin and Litecoin fluctuate, often violently, on a day to day basis. From an investment perspective, the volatility of price in the cryptocurrency market makes its future uncertain as buyers and sellers cannot know for sure what their cryptocurrency is worth from one day to the next. While price fluctuations have become less extreme over the course of the last year, many speculate that an evening out of volatility is not a near-term reality for cryptocurrencies currently available in the market.

Mainstream Acceptance

Another reason the future of cryptocurrency is uncertain is the lack of mainstream acceptance among companies both large and small. Businesses have been slow to offer cryptocurrency as a payment option for goods and services because the price volatility explained above. For instance, if a consumer pays for a product with 100 Bitcoin today, the value of that transaction can drop dramatically within a matter of hours, leaving the business accepting Bitcoin as payment at a financial loss. Until the price volatility of cryptocurrencies like Bitcoin decreases, mainstream use of virtual currencies for everyday transactions isn’t in the cards.

Overall, cryptocurrencies offer an alternative to centralized government and financial institution-controlled payments, but the future remains questionable for the viability of virtual currencies throughout the world.

Posted on December 15, 2017 by in Personal Finance

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