Bitcoin and other cryptocurrencies have been making the news again after a recent crash down from all-time highs. It’s gotten experts talking about wh
Bitcoin and other cryptocurrencies have been making the news again after a recent crash down from all-time highs. It’s gotten experts talking about what the short-term and long-term trends we’re going to see in cryptocurrency are and how major plays like governments and organizations are guiding them.
Growing Environmental Concerns
Most cryptocurrencies rely on extensive calculations to drive the blockchain. These calculations are performed by miners using powerful computers that receive rewards in the form of cryptocurrency for doing so. This is an innovative way to incentivize the propagation of the blockchain while also limiting supply.
However, this system comes with a major caveat. These computations take electricity and, in many cases, lots of it. This wasn’t a problem in the early days when there were fewer users and fewer miners. But today, cryptocurrencies are using as much electricity as the entire nation of Sweden. As they continue to scale, this electricity use is proving to be unacceptable.
The solution to this problem might already be in use by some cryptocurrencies. Bitcoin, among others, uses a proof of work system that requires power-intensive calculations. Many newer cryptocurrencies are switching to a proof of stake system that requires less energy per transaction. This new development can achieve energy per transaction in the same range as most credit cards.
Of course, it isn’t necessarily Elon Musk individually who poses a major threat to Bitcoin and other cryptocurrencies, but it could be. The eccentric billionaire made a number of unexpected and sudden moves regarding cryptocurrencies, including Tesla’s investments in Bitcoin and his personal comments and tweets on cryptocurrencies in general.
Cryptocurrency markets swung wildly in response to Musk’s actions, with his prominent opinions driving speculation. The same thing could continue to happen into the future, and not just from Elon Musk. As a highly speculative area, crypto markets are vulnerable to speculation. The impact that individual figures with unclear and often puzzling motivations can have is a serious concern for many investors.
Regulation can have positive and negative effects on cryptocurrencies. Having an effective framework for monitoring and regulating exchanges and other organizations involved in cryptocurrency can protect users and investors. However, restrictive measures could see cryptocurrencies lose the very benefits that lead people to use them.
In some countries, cryptocurrencies are simply illegal. While the nature of cryptocurrencies means that many can still use them even when illegal, it makes wide stream adoption impossible. The public use of cryptocurrencies would be impractical, relegating their use back to the internet back-alleys where many saw their first real applications.
Even if not outright illegal, government regulations and taxes could make cryptocurrencies no different from regular currencies in practice. Reporting requirements or even forcing transactions through state intermediaries could be effective measures against tax evasion and money laundering, but they limit the privacy and versatility that many cryptocurrencies are looking for. When we looked into crypto-related money laundering activities we noticed that there are a lot of scams that are being heavily promoted these days. The one we were able to track was named Yuan Pay Group app, which was recently exposed by a very well-known website. This kind of activity is causing regulators to become very edgy and implement stronger safeguards designed to protect investors.
The blockchain is a type of online ledger that keeps track of all the transactions carried out with that cryptocurrency. However, it is sometimes possible for people to exploit the blockchain and insert other data that is propagated along with financial information. While crypto transactions are safe due to encryption, this additional data can be inserted.
There are numerous types of content that cannot legally be transferred from person to person through the internet. This is exactly what continuing the blockchain does, so illegal material inserted into the blockchain could be construed as an active crime by all participants. The implications of this problem and its potential solutions are completely unknown at this time, but it certainly seems like a substantial threat to the future of cryptocurrencies.
Competition From Governments
Many countries around the world are at various stages of producing digital currencies. Some of these are more like traditional cryptocurrencies than others, but they all allow for digital transactions. The key difference is that an official cryptocurrency will likely have some stability enforcement from the state. This would make them an ideal choice specifically for carrying out online transactions that could supplant cryptocurrencies as we know them.
It isn’t quite clear how or if cryptocurrencies are going to weather the oncoming threats. The ones we know about seem bad enough, but new threats could emerge in the future that we haven’t even considered today.