Cryptocurrencies – more than just a Trend
Author: Winona Fischer
Estimated reading time: 7 min
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While until 2017 cryptocurrency was something mostly known to insiders, things changed when a cryptocurrency called Bitcoin conquered the media – creating an investor fervor for cryptocurrencies in general. This fervor allowed Bitcoin to reach a trading price of almost $20.000 in December 2017. But as spectacular as its rise was, so was its fall. In less than a year the trading price reached a low of $3.000 and while Bitcoin made many people very rich, it also contributed to people losing lots of money. Ever since then cryptocurrencies based on the blockchain technology, which emerged in its basics in 2008, have not only been on the radar of people who value their privacy – for miscellaneous reasons as it will be shown later – but also on that of a greater public audience. That the market itself isn’t as simple as one might think becomes apparent when turning to the vast amount of currencies in existence. Today “there are more than 5,000 cryptocurrencies in existence […] and over 20,000 different types of markets” (Bitcoin 2020).
The great potential of cryptocurrencies has also been realized by larger companies as well. Facebook for example has been and still is developing their own currency named “Libra”. As Mark Zuckerberg himself stated in a hearing before the US House of Representatives in October 2019: “There are more than a billion people around the world who don’t have access to a bank account, but could through mobile phones if the right system existed.” (Zuckerberg Hearing, 2019). That the creation of money by non-state entities isn’t viewed upon without skepticism though becomes apparent in the circumstances under which Zuckerberg had to defend his project – in a hearing before the US House of Representatives. Looking at why there is skepticism towards cryptocurrencies, how this interrelates with crimes and providing a general overview of cryptocurrencies will be the topic of today’s article.
As already mentioned earlier there are thousands of different cryptocurrencies which are being traded every single day. In particular in the first quarter of 2020 the cryptocurrency Ether has listed an average of 753.51 transactions daily (Statista, 2020). If we furthermore take a look at the graph down below, the market capitalization of some of the major cryptocurrencies in between 2015 and 2020 is made clear.
Probably the most well known and biggest cryptocurrency is Bitcoin. As already mentioned in the introduction Bitcoin already experienced quite a few big highs and lows. Bitcoin was introduced in 2009 and interestingly it is still of a mystery who invented the digital currency, only a pseudonym is being used which is known as “Satoshi Nakamoto”. With lower transaction fees than other classical online payments it also has the “advantage” of being operated by a decentralized authority, which many Bitcoin users appreciate since it is not being controlled by a governmental institution (Investopedia, 2020).
The second biggest cryptocurrency according to the market capitalization, as already mentioned called Ether, has only been launched in 2015. Ether is also based on a Blockchain technology and experienced an accelerated growth in the last couple of years. One big advantage that Ether has is that it is not solely a cryptocurrency, but it is embedded in a platform called Ethereum. The platform for so-called “Dapps” (decentralized apps) consist of Smart Contracts, which are automated computer programs which are executing or controlling legally important events in accordance with the terms of the contract. Users on this platform can exchange data without a centralized server, but with the shared database the “Ethereum Blockchain” (Ethereum, 2020).
The fourth biggest by market share is Ripple with 4% in 2020. Ripple’s crypto currency is called XRP, and is similar to Bitcoin, an Open Source program. Founded in 2012, Ripple, as a company had the initial idea of enabling financial institutions to transfer money across borders fast and reliably. These days the company has more than 350 employees and cooperates with companies like Accenture or Santander InnoVentures (Ripple, 2020).
With a market share of 1%, Litecoin is another cryptocurrency which made it into the top 5. Being created by Charlie Lee, a former Google employee, he sees Litecoin as the silver to Bitcoin being the gold in the market. This is due to the fact that Litecoin is a Fork of Bitcoin. Broken down to a more simple language a Fork is a copy of a protocol which has been used before and will be further distributed again in a changed version, therefore Litecoin works quite similar to Bitcoin, in terms of the mining process and the programming language (YouTube, 2020).
Lastly mentioning Monero as another firm for cryptocurrency in the market. Hereby the currency is called XMR and is a decentralized and also blockchain-based currency which is in contraire to Bitcoin stressing much more the aspect of privacy and anonymity of their users (CoinMarketCap, 2020).
The Cryptocurrency market is a very dynamic and fast moving market and a notable number of trends have been influencing the scene consecutively. Some important trends are worth a deeper attention in the following.
First of all as in many industries these days, Artificial Intelligence has a major impact also for cryptocurrencies. They will very likely transform, when integrating AI and machine learning into blockchain technology, because it can potentially make it more safe and can decrease the numbers of security shortages. Bringing these technologies together will be one of the greatest success drivers industry players will be seeking for in the next couple of years.
The launch of the cryptocurrency Libra seems to be rescheduled a little differently this year, although Facebook itselfs has announced on the website that it will be introduced in the first half year of 2020. Many regulatory setbacks have come in their way, which need to be cleared out first. Therefore it is not sure if it actually will be launched this year (McIntosh, 2020). If it will be launched soon, it is going to be a super interesting journey how the global currency will influence the current market. Noteably Libra won’t only be controlled by Facebook, but by many other founding members of the crypto currency association like Visa or Uber (Kumar, 2020).
Having said that, legal aspects are generally something which leads the trends of crypto currency intensively since governments worldwide are starting to realize the big potential that digital currencies are having and especially which advantegs users can take from it. As of now cryptocurrencies are not being issued by any central banks or government but the advantages that there are would indeed be pleasant. Firstly because it does not require any material like paper or plastic, it is easy to “store” and very fast and easy to track.
The major problem so far still is the security standards though, the usage of modern technology offers much security safety, but in the end all computer programs and the internet always face security threats. In addition to that it is also arguable whether governments will have an interest in having decentralized and total anonymous money transactions. Especially therefore cryptocurrencies are often being used for illegal transactions such as money laundering. Generally Cryptocurrency is very often being reported about in the media in the context of illegal activities or crime, because it does bring these anonymous and independant advantages along for criminal activities (Vrajlal, 2015).
Having seen what major players are in the field of the thousand crypto currencies in the market it will be interesting to follow how this whole industry will develop especially looking also at the major trends. Although governments around the globe are having different but slightly the same concerns of cryptocurrencies it will be something politicians and other stakeholders of society will have to deal with more and more. Talking about security standards, data policies but also control mechanisms for the digital currencies will be crucial for the industry, but also for society at large at some point. Especially taking the potential into account, that people these days rather own a phone than a bank account, with an upwarding trend.
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