Thanks to multiple public figures endorsing “altcoins” like Doge and Tesla purchasing $1.5 billion worth of Bitcoin, cryptocurrencies have taken center stage yet again. But beyond the buzz surrounding “memecoins” and emotional investing, do cryptocurrencies hold up as a potential currency of the future?
What is Cryptocurrency?
A cryptocurrency or crypto is a virtual currency that serves as both a medium of exchange and a store of value. Similar to fiat currency (government-issued currency), cryptocurrencies are not backed by any physical commodities like gold and silver; however, they operate in a decentralized fashion on distributed public ledgers called blockchains, i.e., not governed by a central authority like a central bank.
Since cryptocurrencies function independently – free from any central bank’s regulations – miners can add new units of currency as long as certain conditions are met and the maximum possible supply is not exceeded. For instance, the total number of Bitcoins in circulation will never exceed 21 million, and miners can only get rewarded in Bitcoin after a new block is added to the blockchain.
Types of Cryptocurrency
Bitcoin, the first cryptocurrency based on blockchain technology, is by far the most valuable and most recognizable digital currency today. Since its introduction in 2009, multiple developers have created thousands of digital currencies with varying specifications, values and functions.
Besides Bitcoin, the other types of cryptocurrency available today are altcoins and tokens. While some alternate cryptocurrencies (altcoins) like Bitcoin Gold (BTG), Bitcoin Cash (BCH) and Bitcoin SV (BSV) are hardforks/clones of Bitcoin, thousands of them are unique, built from scratch and serve different purposes.
Compared to Bitcoin and altcoins, tokens are unique because they do not operate on their exclusive blockchains. Instead, they run on dApps (decentralized applications): applications that operate on peer-to-peer networks instead of being controlled by a single computer or entity.
What Properties Make Cryptocurrency Preferable To Fiat Currency?
Permissionless
Most cryptocurrencies use permissionless blockchains, meaning that there is no central authority to bar anyone from sending or receiving crypto on the network. Trading on a permissionless blockchain is as simple as joining an exchange, downloading a crypto wallet, converting fiat currency to a cryptocurrency of choice and trading with other crypto users.
Fast and Global
Unlike fiat currency transactions that require intermediation from a central bank, cryptocurrency transactions happen almost instantly, and confirmation only takes a few minutes regardless of the amount involved. Since crypto transactions happen on a global peer-to-peer network of computers, transaction speeds are unaffected by the sender’s/receiver’s location.
Pseudonymous
Cryptocurrency accounts and transactions are not linked to any real-world identities. Although it is possible to follow a transaction’s flow, connecting it to the participants’ real-world identities is often impossible.
Secure
Digital currencies use virtually impenetrable cryptography systems during transmission and storage. Crypto unit owners receive private keys that only they can use to send their coins.
The Future of Crypto
Like any other emerging technology, much of the world is divided on the viability of cryptocurrencies. On the one hand, we have supporters like Elon Musk, Richard Branson, Bill Gates and Al Gore, who vouch for cryptocurrency’s superiority over fiat currency. On the other hand, prominent figures like Robert Shiller, Warren Buffett, and Paul Krugman regard it as a fad and a facilitator for criminal activities.
Regardless, a sizeable chunk of the world seems to be slowly tipping towards accepting cryptocurrency. Many futurists believe that cryptocurrencies will account for at least 25% of all currencies by 2030.