What is the future of something as seemingly intangible, poorly regulated and risky as cryptocurrencies? Anyone who says they know the answer to that question is lying. In reality, cryptocurrencies are an attempt to redefine the concept of money, with all the difficulties and resistance that this entails, to bring it into the digital era: to reinvent money so that it no longer depends on what governments and central banks want to do, but on an algorithm.
The idea, in principle, is a good one: why should we have to accept that a government can issue as much currency as it sees fit, and why do we have to accept that inflation, which destroys the value of the money we have previously obtained, is a natural phenomenon?
Or worse… why can some governments issue practically as much money as they feel like, as the United States did during the pandemic, while others cannot do so without risking a huge fall in its value? To put it crudely, if the dollar says “in God we trust”… what are we doing relying on God or in the government for something like this? Wouldn’t it be better, and above all, more predictable, to put our faith in mathematics?
Cryptocurrencies are, without a question, the money of the future. When a technology has this potential, its adoption is only a matter of time. In the not too distant future, people will trust cryptocurrencies more than the currency issued by their government, for the simple reason they remove political or other arbitrary factors from the equation. How much is a cryptocurrency worth? It simply depends on the number of people prepared to use it.
What should we think, therefore, when we see the variations of the bitcoin or ether price against the euro or the dollar? Speculation? Obviously, there will be speculators, because there are always speculators where there is money to be made, and there will even be fools who go into debt to buy intrinsically risky assets. There will even be irresponsible people who build castles of cards and destroy value for many unwary people, but in the end, what we are experiencing is a process of discovering the value of an asset, no more, no less. When we are more or less clear about how many people rely on cryptocurrencies for their regular use, we will start to put a price on them, corresponding to the total volume of transactions we are going to carry out with them. At the moment, we are just exploring and trying to see how many people understand the concept and the value proposition.
Given that creating a cryptocurrency is relatively simple, which ones will survive the test of time? The case of bitcoin, a pioneer that has been around for some time, which has already issued more than 90% of the total amount to be issued and has many followers, is interesting: it is a practically fossilized currency, with its rules written little less than in stone by that unknown Satoshi Nakamoto, and which practically do not change, because obtaining consensus to change them in the absence of a decision maker is extremely difficult. Note: bitcoin fanatics claim that this inflexibility and lack of change is precisely a fundamental value of bitcoin.
Then there is ethereum: a cryptocurrency created by Vitalik Buterin, and popular with a lot of people. It’s also open source, it allows many more use cases than bitcoin, and it has rules that evolve to adapt to the situation: it uses huge amounts of energy and emits too much carbon dioxide? We change it as we go along, making it simpler and cheaper, and we even consider the possibility of compensating all the carbon footprint it generated before. A bunch of crooks send exchanges into bankruptcy and we need a tool for such exchanges to demonstrate that they are solvent and have reserves? We propose it, we develop it, we test it, and that’s it. A dynamic perspective, led by some of the brightest minds of our time, that evolves, changes when it needs to change, and provides solutions to problems.
You may not have heard of The Merge, but it could change our world
Ethereum is now the world’s number two cryptocurrency. And the conversion of its consensus algorithm from proof-of-work…
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There are any number of other cryptocurrencies out there, some interesting, others a joke, and all of them with a problem: not many people use them. And since the value of a cryptocurrency depends strongly on the number of people using it, we will see many interesting or attractive value propositions failing over time. If you want to risk your money into something that, most likely, will not reach a significant adoption, or into a cryptocurrency that was created as a mere joke, that’s up to you… but remember, your mileage may vary.
Is it a good idea to invest in cryptocurrencies? At this moment, the most interesting thing about putting some money, even if it is just a small amount, into cryptocurrencies, is to learn how they work. Take twenty dollars, buy some 0.00083ETH or 0.000060BTC in a known exchange, such as Coinbase or Binance, transfer them to a wallet fast to understand how the process works, and enter into the dynamics of the blockchain, which will soon be everywhere: the so-called Web3 will almost certainly work by incorporating the blockchain into practically all processes, which will give those who have some idea of how it works, in principle, a certain advantage. Above all, remember the golden rule: “not your keys, not your coins”, which is why it is better, although it sounds more risky, to manage your own coins in your wallet, rather than leave them in a centralized site where third parties can get at them.
What’s the first rule of cryptocurrencies? Not your keys, not your coins…
Technological changes are complex processes, and it is perfectly normal for a certain amount of confusion. The process…
medium.com
Don’t be put off by recent or future scandals. They mean nothing else than there are thieves everywhere, it is part of (some) human nature. The future is blockchain everywhere and applied to everything, and the sooner we get our heads round that, the better for everyone. Let’s calculate the risks and be cautious, but let’s not be afraid to play, because playing is how we learn. And in many ways, our future depends on our learning.
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