It appears that the rumors about the death of cryptocurrencies have been grossly exaggerated. Despite the Bitcoin panic a few years back, new cryptocurrencies, especially those based on blockchain technology, are thriving. Many have been quick to write off the whole “digital coins” affair as a massive failure back then. Today, even the harshest critics are admitting that cryptocurrencies are here to stay. What does that mean for business owners and their companies?
What Are Cryptocurrencies?
The term crypto comes from the cryptographic function of digital coins. Each transaction is encoded by a “hash” in a way that the process can’t be reversed. This information serves as an independent ledger, keeping everyone honest, without the need for enforcement or control of a central authority. Anybody can create new cryptocurrencies and issue them, as long as there is a strong community using them. This is both the greatest advantage and the greatest weakness of cryptocurrencies. At the moment, the cryptocurrency market is valued at $300 billion. It isn’t an insignificant number, but still a far cry from its peak at $810 billion. Some experts say that the threshold of $1 trillion may be passed in the next two years. Once that happens, the sky will be the limit.
Banks, as traditional intermediaries in all financial transactions, will have much less of an impact. By definition, crypto transactions are peer-to-peer and don’t need a third party. This means that banks are obsolete in that system. Of course, banks are fighting back, trying to stay relevant. One of the ways they do that is by employing blockchain technology themselves. A similar thing happened to post offices when the email came around. However, they managed to stay afloat by inventing new ways to offer their services. In a not so distant future, banks will face similar challenges. It will be interesting to see how they cope with this threat to their existence.
After the Bitcoin crash in 2018, when it lost 65% of its value, a lot of people became skeptic about investing in digital currencies. The reasons behind the crash were various, but it didn’t take long for investors to regain their confidence. These days, any serious bitcoin long term investment is made through crypto funds, rather than individual coins. This type of investment tends to mitigate the effects of the volatile cryptocurrencies market. Focusing on performance, rather than on a single currency, crypto funds manage to stabilize long term investments and offer steady returns. Some of them, like Grayscale Investments, managed to achieve quarterly returns as high as 179%.
One of the biggest impact wide implementations of cryptocurrencies will be a massive reduction of transaction fees. It will also be another blow to the banks since they rely on these fees for a large portion of their income. With digital coins, transactions are almost free. If dealing with a peer-to-peer transaction, the only expense is digital wallet maintenance. You can get one for as little as $30, which is insignificant for accounts dealing in millions. Compare that to the 2% to 5% PayPal and credit card companies charge per transaction. Add in the elimination of all intermediaries, even in cross-border transactions, and it gets easy to see the allure. Another benefit is the speed of the transaction. Crypto transactions are often instantaneous. Credit card transactions usually take two to three days to process.
Crowdfunding has become a legitimate way of raising funds for startups. Still, there are many deficiencies in the process. Just 78% of all campaigns are successful and only 19% of all gathered funds go to developing countries. This creates a massive imbalance and a lack of opportunities where they are needed the most. Cryptocurrencies will make this process even faster and more efficient. Instead of using platforms like Kickstarter and GoFundMe, which all charge provision, it will be possible to deal directly with the investors. Built-in anonymity will make sure that you don’t have to reveal your identity if you don’t want to. More and more startups are trying to raise funds through crypto crowdfunding and succeeding.
One limiting factor in the worldwide implementation of cryptocurrencies is the lack of government oversight. This makes large corporations wary of them. Crypto is still somewhat regarded as a tool for criminals to conduct business below the law-enforcement radar. Once governments around the globe step in and institute proper regulations, we will witness a massive crypto revolution. The current surge in the cryptocurrencies market may seem similar to those of 2013 and 2017, but there is one fundamental difference. The 2013 bubble was created by dark money, while 2017 was driven by market speculations. The 2019 growth is backed by the investments made by financial institutions. That is a sure sign that cryptocurrencies are slowly getting traction with them and entering the mainstream.