Cryptocurrencies have undergone quite a tumultuous journey in the past few months. Although cryptocurrencies have registered a sharp drop in prices in 2018, they have still managed to hold sway due to several reasons.
The fast growth of cryptocurrencies in a very short span is in itself an indicator of their value as an exchange medium. The innovative design backed by digital technology is another attraction that makes them look invincible. If you are new to the cryptocurrency world, here is what you should know about cryptocurrencies. The reasons cited below are mainly responsible for the digital currency being a powerful force now and one that you should not ignore.
Reason 1: Decentralized
The traditional currency we use is controlled by governments and the financial institutions like banks. Money is created by minting; the supply and use are governed by interest rates that increase or decrease at the discretion of the regulatory bodies.
In the case of cryptocurrency, the situation is entirely different. There is no centralized authority regulating its use. And if any change is to be brought about, it is implemented via the approval from the large cryptocurrency community. In spite of a majority exerting influence over the currency, a minority can still veer away to create a fork or a different version of the cryptocurrency, which is how some altcoins came into existence.
Reason 2: Low Cost and Hassle Free Exchange Value
When compared to the conventional fiat currency system, cryptocurrencies have lower transaction costs and faster processing. For instance, in a credit card transaction, the process takes a few days to complete and this is also true for other conventional methods of transfer including wire transfer, ACH and check.
This is because of the presence of several intermediaries. In a credit card transaction, you have three intermediaries between the customer and the merchant. This is not the case with cryptocurrencies. You do not have any intermediaries.
While Bitcoin, the most popular cryptocurrency, has a slightly higher transaction cost than ACH, it is better when compared to other forms of transfer including wires, checks and credit cards. It is also faster with the transaction being completed in less than a couple of minutes.
However, it should be kept in mind that if you deal with cryptocurrency exchanges to convert Bitcoin or altcoins to fiat money, additional fees will be charged. As a comparison, Coinbase claims to apply a fee of around 1.49%-3.99%; Kraken charges depending on the trade volume and generally their fees range from 0% to 0.26%; and finally, there is CEX.IO – their fee schedule is a bit more complex: the taker-maker fees amount for 0%-0.25%, while the commission for their FOK order service can run up to 7% (as the CEX review says). Sure, there are more exchanges out there and each one has its own fee policy. So, before starting with any cryptocurrency exchange, examine its commissions carefully.
Reason 3: Autonomous Capability
Cryptocurrency is backed by blockchain technology. The blockchain relies on the ever-growing crypto community, which runs the software for verification of the transactions that occur without regulation of a treasury or a bank.
Whenever a transaction occurs online the community gets updated. This creates new data chains or blocks. The blockchain is essentially an open type of record or ledger for the transactions, which is permanent and verified. Since the data is immutable and on top of it decentralized it inspires trust among users as the entire transaction history is transparent with any changes being visible immediately. This essence of blockchain technology makes it a potent resource for application in various industries.
IBM and shipping firm Maersk, to mention a few, are already using the technology to simplify their operations and make them efficient. AThe accuracy of records and ensuring a corruption-free process becomes easier with blockchain.
But there’s Still a Pressing Issue: Fluctuating Cryptocurrency Value
Cryptocurrencies saw a major spurt in value in 2017 due to the increased interest in the digital currency worldwide and the promising potential of blockchain technology fueling the currency. However, due to the evolving nature of cryptocurrency and the higher degree of market speculation, there is high volatility.
The Bitcoin value dropped from the $20,000 mark towards the end of 2017 to $10,000 in 2018. The digital currency has shown a massive decrease in value, but with a speedy recovery too.
The drop in value is mainly due to the fact that the cryptocurrency is not yet adopted as a common exchange medium. The talks about future regulations, bans on cryptocurrency advertisements by Google and thefts from the exchanges are some of the reasons that have influenced the drop in the value.
Future of Cryptocurrencies: What Experts Predict
Despite big setbacks faced by cryptocurrencies in 2018, experts are optimistic about the digital currency’s future. According to David Drake, Chairman of LDJ Capital, the price of Bitcoin can spike up to $30,000.
Jack Dorsey, CEO of Twitter and Square, has predicted that Bitcoin can dominate the dollar in a few years. APAC business development head, Thomas Glucksmann cites the regulatory recognition, a major development in the technology and rebound of the market can push the prices past $50,000 by the end of the year.
The mobile payments with Bitcoin planned by Square and futures trading introduction for Bitcoin by CME Group are instances that contributed to an increase in the cryptocurrency trading volume, and thus lesser volatility. While wild crashes are predicted for the cryptocurrencies due to the higher peaks they can reach, investing is a very exciting prospect but a difficult one at the same time.
The potential uses of blockchain technology in different areas can drastically reduce the routine, laborious and error driven systems and replace them with the productive and faster ones. With the technology forming a base of an efficient service-oriented ecosystem, cryptocurrencies gain more value by being part of the blockchain technology. In spite of the steep ups and downs that cryptocurrencies have had in the past couple of years, their inherent value is still promising. This indicates that cryptocurrency can hold its own forte at present and in future.