The Future of Cryptocurrency - Part 1
Three part series on the present, past and future of digital currencies
Digital currencies are all the rage. They are everywhere. There are now over 2,000 cryptocurrencies in circulation, and yet the total value of all coins has crashed. According to Reuters, the total market capitalisation of these nifty little digital currencies has fallen from a peak of nearly $900 billion to around $250 billion.
It feels like we have been here before. Like a monetary Abba digital currencies are on their third life, having started in the back room of retail barter exchanges in the 1990’s, before ceding to digital currency 2.0 led by Internet rock stars Beenz and Flooz at the turn of the millennium, before the infrastructure and circumstances fell into place for the current third wave, led by bitcoins, blockchains and buzz.
By looking at the earlier days of digital cash we might better be able to predict where cryptocurrencies are likely to head over the coming years. Over the hill, or up the proverbial river without a Metamask-wallet in sight.
Our 3 part series, over the next two weeks, on ‘The Future of Cryptocurrencies’ will examine the present, the past and the future. You know, a kind of Marvel revival-cum-future-scoping - only this time about how we spend it! We start with a look at the present.
To crypto or not to crypto? That is the 21st century question.
It seems as though everyone is getting involved in cryptocurrencies. As of 2021, TripleA estimated global crypto ownership rates at an average of 3.9%, with over 300 million crypto users worldwide. And over 18,000 businesses already accepting cryptocurrency payments. So, an underground movement no more.
In the early 2000’s, the precursor to Bitcoin, Beenz, peaked at around 6 million account holders with thousands of businesses trading the original web currency. Flooz had about a million users. So, it seems that the current wave of crypto currencies are on a tear. Or are they?
Cryptocurrency values bounce around like a cowboy on a bucking bronco!
According to Investopedia, on November 26, 2021 a Bitcoin was worth $54,572 and at that time all the bitcoins in the world were worth roughly $1.03 trillion. The combined value of bitcoin was equivalent to just 2.9% of the world's money. Bitcoin was worth about 9% of the world's gold supply.
Bitcoin is the largest and best-known cryptocurrency in the global economy. However, it is far from the only one. If we combine Bitcoin with Litecoin, Monero, Ethereum, and all other significant cryptocurrencies, the total value comes to roughly $2.48 trillion. That is about 7% of the value of all the worlds (narrow) money. Which is a whole heap of digi-cash!
But, today a Bitcoin is worth about $43,000.
Crypto values swing wildly - sometimes moving up and down by 10% in a day. It is very hard to predict prices going forward and digital currencies are some of the riskiest investments around. Obviously other than Madoff, mortgage-backed securities or a subscription exercise bike - Peloton anyone?
There is a genuine long tail effect, with the top twenty cryptocurrencies accounting for around 90% of the total volume of crypto traded on a regular basis. There are more cryptocurrencies than physical ones. You will be pleased to know that there is even a PutinCoin, which Ukraine might want to go long or short of dependent on when they think Russia might invade.
For those of us not concerned about eating cows or reducing their emissions there’s even a nod to Burger King with the Whoppercoin!
But are cryptocurrencies really currency?
Most decentralized cryptocurrencies are not issued by a government, which historically has been the only entity that society trusts to issue money. Instead of being regulated by a central bank and coming off the press at the Bureau of Engraving and Printing, these alternative currencies are created by an elaborate cryptocurrency procedure called mining, which consists of processing a list of coin transactions - typically on a thing called a blockchain. Stay with me.
‘Currency’ is generally defined as a medium of exchange for goods and services. In short, it's money, in the form of paper or coins, usually issued by a government and generally accepted at its face value as a method of payment.
And currency is the primary medium of exchange in the modern world, having long ago replaced bartering as the most established means of trading goods and services.
In the 21st century, the virtual currency has entered the vocabulary as a new form of currency. Virtual currencies such as Beenz or bitcoins have no physical existence or government backing and are traded and stored in electronic form. There are also branded currencies, like airline and credit card points and Disney Dollars. The latter are issued by companies and are used only to pay for the products and services to which they are tied. Try taking Disney Dollars to Bangkok’s bustling street markets. Now that I think about it, that one might even work.
Are countries starting to adopt crypto?
Of the 2,000 odd cryptocurrencies most are private - which could be the Achilles heel in the system. But governments are starting to dip their toes into the crypto world. El Salvador made Bitcoin legal tender on June 9, 2021. It is the first country to do so. The cryptocurrency can be used for any transaction where a business can accept it. But, the U.S. dollar continues to be El Salvador’s primary currency.
China is ramping up efforts to roll out the digital yuan to its population at large - and, let’s face it, it is very large. The country’s technology giants including Alibaba and Tencent seem to be jumping on board as well. Apparently they’re too terrified not to. It seems that the People’s Bank of China, which is the country’s central bank, has been working on the digital form of its sovereign currency since 2014.
Also known as the e-CNY, it’s designed to replace the cash and coins already in circulation. It is not a cryptocurrency like bitcoin, mainly because it’s controlled and issued by the central bank. Bitcoin is a decentralized digital currency that isn’t backed by any central banks or a single administrator.
China’s digital yuan is a form of central bank digital currency which many other central banks around the world are also working on — though the Chinese central bank is way ahead of its global peers. Clearly an increasingly important part of their one China policy. Perhaps they think getting to a government backed digital currency first might allow them to extend its reach, and theirs, internationally.
They have been piloting the digital currency via lotteries, and tens of millions of digital yuan have been handed out to citizens in a bunch of cities in China - taking a leaf out of the Beenz playbook by making their cryptocurrency playful and easy to earn/win/grab-and-run.
Sadly, because it is managed by the central bank, er, Xi Jinping, and will presumably not limit its supply as starkly as most other cryptocurrencies - its value is less likely to shoot up and make the Chinese people rich and powerful.
Can cryptocurrencies go beyond investment assets and become a digital payment like cash?
For digital currencies to become more widely accepted around the world, more adopters will need to feel emboldened to actually use them. At the same time, merchants will have to see proof that customers will actually use these invisible coins, and that the costs of offering it as a payment option will be worth it.
Progress is being made. A growing number of companies have added Bitcoin and other cryptocurrencies as a form of payment. For example, Tesla began accepting BTC for its vehicles in early 2021 (then backed out in May, then resumed accepting Bitcoin in July, then God/Elon only knows what next). It seems they saw a good trade in between. PayPal has recently developed a crypto checkout service that can be used at all of its 29 million merchants worldwide. Proving that Elon Musk is everywhere.
With your dollars, pounds and yen, you can store your money in a bank. From there, you can spend it digitally, say through a bank transfer or even PayPal. You can use a debit card, too. And, of course, you can always withdraw your money and physically stuff it in a wallet and spend it that way.
Storing cryptocurrency involves a "wallet" as well – but because it's digital money, your wallet is digital. You can use software-based wallets such as Metamask or Coinbase Wallet on your desktop, or to access your crypto from anywhere using your smartphone. Physical wallets exist, too. Mostly USB devices that store your cryptocurrency electronically.
And actually, it's even possible to use paper wallet services for your crypto, which is the closest you'll get to spending your Bitcoin as if it were actual cash. With this method, you'll have a piece of paper with two QR codes: one can be used to receive cryptocurrency, and the other can be used to spend it. More like Disney Dollars than actual dollars - for now.
Crypto, credit cards, bank cards - and who in the world came up with SegWit?
Buying goods from online businesses that accept Bitcoin is quite easy if you have a cryptocurrency wallet with an integrated browser or browser extension. If you don't, most wallets offer easy to copy-and-paste SegWit (not SegTwit) (and who comes up with these terms anyway??) addresses that come accompanied by a QR code to make it simple to send and receive specific cryptocurrencies both online and offline.
You can spend your Bitcoin and other cryptocurrencies by using crypto-linked debit cards. Even major processors such as Visa and Mastercard are offering these products, and you can use them for everyday expenses just like you would a traditional debit or credit card. This may prove to be the fastest route to the broader use of alternative currencies.
Bitcoin is becoming easier than ever for holders to spend as they wish online, which has helped to pave the way for greater practicality and adoption across the wider world of crypto. Microsoft, Xbox, Namecheap, Newegg and Overstock take it.
And to really get you revved up, you can spend it offline as well, at places like Baskin-Robbins, Crate and Barrel, GameStop, Home Depot, Starbucks and Whole Foods. And apparently McDonald's and Burger King are experimenting with accepting cryptocurrency in some international locations. Way to travel!
You can find out which stores around you accept cryptocurrency payments by checking out Coinmap, which shows both merchants and ATMs. Bitcoin.com has a map detailing where Bitcoin is accepted.
Crypto and NFT - a marriage made in geek heaven!
Of course the hottest new way to spend your crypto is to buy NFT’s - just try to avoid the Cent marketplace for now. It seems not all NFT’s are made quite the same… Yet, the latest chatter seems to be about NFT’s becoming the hot new investment - replacing even the cryptocurrency buzz??
Most people seem to buy cryptocurrencies as an investment - like investing in gold. Except gold can be hung around your neck and doesn’t collapse in a day. Both involve mining which can be, well a little people/child/environmentally unfriendly. Some folk are wary of treating their crypto as cash. After all, you wouldn’t pull out a bar of gold to pay for your Starbucks coffee. Saying that, the speed at which inflation is shooting up…
Some cryptos, like Dash, Manero and XRP seem to have been specifically designed to work better for spending. Stablecoins, like Tether or USD coin, can also make better alternatives for purchasing, since their prices are tied to existing currencies.
People need to be wary of certain tax implications whereby spending your Bitcoins might imply a capital gains tax. So, not quite as simple and friction-free as slapping down your dollar bills for a vanilla nut soya rainforest-crushing latte.
All the same, people are interested in how crypto might work as a payment method. Nearly 20% of all U.S. adults say they’re likely to make a purchase using crypto, according to a recent report by PYMNTS.com.
And crypto is handy for anonymous transactions (so, not shady), international payments and faster transaction speeds. You know, for those oligarchs who need to get ahead of the latest sanctions or just has to have that Lamborghini by lunchtime - because it will colour co-ordinate so nicely with the latest Hermes briefcase full of mmm, cash.
Not all countries give crypto’s the same love.
Cyrpto is not the rage in every part of the world. According to Statista, the countries with the highest cryptocurrency use per capita were not the expected fintech powerhouses like China and the US. Nigeria ranks as the most active market for crypto with 32 percent of the population saying they own or use cryptocurrency. In Vietnam, 21 percent of residents are crypto users or investors, while that number is 20 percent in the Philippines and 16 percent in Turkey and Peru. The report also found double-digit percentages across Latin America, and noted that Switzerland and Greece were the only European countries to make the global top 10.
What is clear is that the rise and rise of cyrptocurrencies continues unabated - with prices moving around like a Russian tank manoeuvre - but there is a clear need for something different, something digital and something you can use to get little Freddy a squeaky Chihuahua for his metaverse play room.
Perhaps cyrptocurrencies are for the unbanked, the shady and the speculators. And maybe they are the latest and hippest anti-institutional fad. But, at least for now, cyrptocurrencies are here to stay.
This is the first in a three part series on ‘The Future of Cryptocurrency - Present, Past and Future’. Next week we will publish part 2 examining where cryptocurrencies have come from. Subscribe today to get articles to your inbox.
Keep up to date with the Letts Journal’s latest news stories and updates on twitter.