What does the future hold for cryptocurrencies?
While the digital currency sector has been growing inexorably for the last decade and institutional investors are now pouring en-masse into the market, this question may seem odd to crypto veterans. Yet, for novices and newcomers to this investment opportunity, it is a legitimate question to ask – do cryptocurrencies actually have a future?
To answer it, we first have to understand properly what we are talking about because cryptos are not just the latest trendy financial product that can be used for short-term speculation. They are currencies that share a lot of features with traditional fiat currencies, like the euro or dollar, but with the notable difference that they are digital and decentralised.
A cryptocurrency is fungible, divisible and transferable like any other money. You can swap them for other cryptos or fiat currencies and you can use them to buy groceries, goods and services on any number of websites with new sites accepting these currencies every day. With some crypto-assets, it is even possible to lend or borrow directly with them or even set up a long-term savings fund for retirement.
A cryptocurrency is clearly identifiable, often limited in supply and forgery-proof thanks to its highly-secure protocol (blockchain) which records the transactions of that currency. Its key differences lie in it being entirely digital, following the lead of many other goods that have already gone through the digitisation process, and being beyond the control of a centralised regulatory authority by using a peer-to-peer network.
All these characteristics have contributed to the extraordinary success of cryptocurrencies, whose prices have soared in recent years. The global value of the market has reached €2 trillion. The performance and momentum of this sector have piqued and continue to pique the interest of retail and institutional investors alike. Among asset managers, the largest names have entered into the market with sometimes colossal investments. This has led to a democratisation of crypto investments, while improving the price stability of these digital assets that were subject to extreme volatility for a long time.
It seems then that the future of cryptocurrencies is more than bright, and the outlook for future values by 2025, 2030 or even 2050 are extremely propitious. For example, some analysts believe more than one billion people worldwide will own some bitcoins in the 2030s, and its price could reach between $500,000 and $1,000,000 by then.
Today, the cryptoverse is witnessing an explosion of applications being set up within its ecosystem, which will enable these digital currencies to be used for everyday activities in the real economy. Nowadays for the general public, they can quickly and easily invest in cryptocurrencies and hold those assets securely. Crypto ATMs are also beginning to appear, shattering the idea that such coins are intangible and giving the final sceptics a means to touch their digital assets.
Elsewhere, online payment platforms allow transactions to be performed in Bitcoin and other cryptocurrencies. Ethereum has introduced new, exciting uses in the area of decentralised finance while non-fungible tokens (NFTs) can act as deeds to property (in the art world, for example). Finally, fundraising using cryptocurrencies is already a reality with Initial Coin Offerings (ICOs).
All signs are go! Yet, it is important to keep a watchful eye on certain changes that could impact the future of cryptos:
- More and more governments are seeking to regulate cryptocurrencies to fight illegal transactions and improve the protection of the retail investor. While the intention is laudable and would bring an extra layer of protection to savers while reassuring institutional investors, the structure of cryptocurrencies should remain decentralised as this is what has made the sector prosper.
- The carbon footprint of cryptocurrencies, especially those using the proof-of-work mechanism, is a sensitive subject. The mining carried out requires a large amount of computational power and thus energy. This energy cost negatively affects the profitability of operations as well as the climate from those extra carbon emissions. Fortunately, there have been welcome improvements to this area. Certain cryptos, such as Ethereum, are moving to proof-of-stake which will make the mining far less carbon intensive, while low energy-consuming methods are also beginning to emerge.
