The invention of cryptocurrency dates back to 2009 when Bitcoin was created. Built on blockchain technology, this digital currency – now also considered a digital asset – was created to make peer-to-peer transactions without the supervision of a central bank or a government entity.
Those who weren’t afraid to adopt the new currency early have since become millionaires thanks to almost constant growth in its market value, despite the hefty price fluctuations. On April 14, 2021, Bitcoin’s price reached a peak of over $64,000. Consequently, buying, selling, and trading Bitcoin became a trend everyone wanted to participate in, despite the unpredictable price and market volatility. Additionally, other cryptocurrencies came to be – Litecoin in 2011, Ripple in 2012, Ethereum in 2015, to mention a few – and numerous digital crypto trading platforms started popping up around the world.
A little over a decade later, cryptocurrencies have grown exponentially both in number and popularity to the point that it’s almost impossible to imagine the future without them. Not only are there more than 2,000 cryptocurrencies listed and adopted by investors, but even central banks and large companies are issuing their own digital currencies.
Considering that it has the power to change the way we define the act of making a payment, crypto has become one of the hottest topics facing the financial services industry globally. The departure from the long-established ways of making monetary exchanges has already begun, making way for a digital revolution of money.
The reasons behind the Cryptocurrency revolution
The first reason for the accelerated growth in the popularity of cryptocurrencies lies in the shortcomings that the existing financial systems suffered from. As the economy recovered from the 2007-2008 crisis, both consumers and financial services companies developed an interest in exploring new ways to make transactions more efficiently, with improved accountability and transparency.
Additionally, another thing supporting the disruption of the traditional finances (and powered by crypto) is that transactions made with digital currencies have significantly lower costs than the fees consumers traditionally face. As a result, the evolution of cryptos is bound to reshape the competition between currencies on the market. It will also restructure the monetary system on a global level (as fostered by the International Monetary Fund) and the role of governments’ money.
What does the future hold?
The success of cryptocurrencies as a payment method and investment asset will depend on the following four factors: the development of the appropriate technology, the increase in consumer demand, adoption by large corporations, and the responsiveness of the regulatory environment.
The complexity of digital currencies compared to their fiat counterparts is highly likely to make many people feel skeptical about this novel payment method, especially those who can hardly describe themselves as technologically adept. Still, the adoption of crypto as a trustworthy form of money by a wider public is a crucial point that will inevitably accelerate the efforts to overcome both technical and regulatory challenges that cryptocurrencies are now facing.
Given the lack of knowledge on cryptocurrencies and the limited trust in their issuing authorities, crypto is still perceived as a speculative asset not suited to individual investors. Therefore, the ability to deal with the issues such as the absence of a central authority that would back the value of a digital coin or make sure the transactions go smoothly will determine the success of this money revolution. For now, price fluctuations and volatility, and the lack of transparency are among the main challenges to faster adoption in the digital payment industry.
Here’s another critical point. On its way to becoming a part of the mainstream payments system, a digital currency must meet quite a few challenging requirements – it needs to protect user anonymity without becoming a money laundering or tax evasion safe haven. It has to integrate all the necessary technical complexities for avoiding hacker attacks and financial fraud while keeping an appearance simple enough for all users to understand. It also needs to make the most of the decentralization benefits while ensuring that consumers are adequately protected.
When we look at different segments of the global market, it’s easy to conclude that the trading, retail, and eCommerce sectors have the strongest potential to play a significant role when it comes to cryptocurrencies.
Furthermore, the advancement of cryptos in the digital payments sphere will inevitably affect the way cross-border transfers are made. Therefore, digital currencies have the potential to become the top option for electronic payments if not the only choice in these situations in the future. Powered by blockchain technology, digital payment services could thus pave a path for turbulence in the eCommerce sector on a global level.
Considering that financial institutions operating worldwide are also headed in the direction of at least exploring the potential of blockchain technologies, these changes will inevitably drive the market in the next few years, leading to an upheaval in the financial ecosystem.