Cryptocurrency is the topic at the center of our next panel, and it’s definitely going to be a divisive one—apart from space exploration, few topics elicit the same visceral reactions among technologists, investors, and futurists.
The central idea behind cryptocurrency is the blockchain, a digitally distributed ledger that keeps track of trades and individual balances. Paired with the ledger technology is mining, the process by which individual coins are generated and the entire system audits itself.
The flagship currency in the crypto-world is still Bitcoin, but Litecoin, Etherium, and BitCoin Cash have risen to challenge it over the past few years. In the case of Bitcoin, the rise has been simultaneously meteoric and wildly volatile, leading many to speculate that cryptocurrency is another hyped-up bubble that will explode before it becomes a real medium for trade.
Here’s a quick overview of what people have been saying about crypto.
It’s a Volatile, Dangerous Bubble
After exploding in value from $3,300 in September to over $19,000 in December last year, the hype surrounding Bitcoin reached a fever pitch, which quickly cooled off when the currency began dropping precipitously in value…then rising…then falling, until it ended up at its current value (around $9,000 as of this writing). This volatility led to the widespread internet joke:
“A boy asked his Bitcoin-investing Dad for $10 worth of Bitcoin currency.
Dad: $9.67? What do you need $10.32?”
On top of these radical, hourly changes in value, the massive influx of speculators has caused problems of its own. According to TechCrunch:
“Cryptocurrencies have now ascended to speculative values that actually preclude any non-speculative uses. They have become so expensive that they are preventing innovation.”
Part of the issue is that transaction fees to actually use cryptocurrencies (especially those tied to the Etherium blockchain) have risen to prohibitive heights. This means that, beyond speculators trading large amounts of coins back and forth, the current hype has made the cryptocurrency world a toxic environment for anyone that actually wants to conduct business in it:
“…developers won’t be able to find real-world users, and get any feedback from real-world use; they won’t discover any emergent properties; and nobody will use and then iterate on their work. That whole continent of the blockchain ecosystem is now essentially in a deep freeze, covered by glaciers.”
Government Regulation Is Looming on the Horizon
In the wake of one of the largest cyber-heists of all time, in which hackers targeted the cryptocurrency exchange Coincheck and stole roughly $530 million, governments across the world have begun to make rumblings about applying regulation to cryptocurrency exchanges. This has caused widespread anxiety among speculators, who fear that state interference will ruin the decentralized nature of their preferred cryptocurrencies.
In a recent announcement, the Securities and Exchange Commission has made it clear that they’re considering exerting control over the coin exchanges:
“If a platform offers trading of digital assets that are securities and operates as an “exchange,” as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration.”
Expect new legislation coming to regular cryptocurrency exchanges soon—though it’s unclear how the government will deal with privacy-centric coins like Monero, which are specifically designed to be anonymous.
The Blockchain Is the Future
Despite the fraught path cryptocurrencies have taken, the idea behind them makes a lot of sense. Commentators like Jonathan Hamel are betting that even if the bubble bursts, currencies like Bitcoin will become a part of life:
“After 10 years of organic growth and institutional adoption, we still see a lot of scrutiny and doubt towards Bitcoin from regulators,” Hamel said. “At some point, we have to accept that it’s part of the financial landscape and move on.”
Right now, it seems as though most investors are simply afraid to be left behind by cryptocurrency train, but the real value in the technology may come from an ecosystem of applications called DApps. According to Hackernoon:
“At their core, DApps are software programs that use the power of blockchain technology and smart contracts to achieve application decentralization, this means that control over any DApp cannot be exercised by any single entity…Smart contracts are self-executing contracts that are designed to enforce an agreement created between two parties. Smart contracts are fashioned to facilitate the exchange of money, or anything of value, meaning that they can be used to create whole ecosystems of value exchange within a DApp, making the use case of DApps even more extensive.”
The Bottom Line
We appear to be coming to the end of cryptocurrency’s Wild West phase and heading toward its maturity, but rather than gambling on Litecoin or other altcoins in the blind hope that it’s the Next Big Thing, now’s the best time to look to the future and start thinking past the gold rush.
Check out our upcoming panel at Microsoft HQ this coming week!