Table of Contents
1. Introduction
Although there are thousands of cryptocurrencies in existence today and new ones being created all the time, most of them fail to last more than a few years. The lifespan of a cryptocurrency can be symbolic of the life of a small business. While many factors may contribute to its success or failure, the main determinant is whether it can make enough revenue to survive. The business can either close directly from a loss of revenue or, in an attempt to avoid this, it may opt to liquidate its remaining assets. Similarly, a cryptocurrency will fail if it cannot make enough revenue to cover its expenses. An expense for a cryptocurrency is an investment into its infrastructure and possibly developer rewards if it is a centralized organization. Running costs increase with the value of the cryptocurrency due to the need to secure it from thieves once it becomes more valuable. High storage cost is a deterrent to potential thieves but can also make the cryptocurrency less attractive to the public and is therefore a cause of its failure. In the event of a loss of revenue, a cryptocurrency may print more coins or inflate. This rarely helps and is equivalent to a dying business taking out a loan. Failure from having not enough revenue relative to costs can be considered a “marginal failure” and may not result in an immediate closure of the currency, similar to the way a business may operate at a loss for some time. This business may make a snap decision to close when faced with bankruptcy. A cryptocurrency may attempt to convert its coins to another cryptocurrency or fiat money. This can lead to a snowball effect of converting to cover costs, which acts as a downward spiral of the exchange rate until the currency is defunct.
People today hold many things – bitcoins, stock, or the local currency – but what about money of the past? People may build small collections, but outdated forms of money or the resting place of old money is of little interest to most and is often forgotten. Cryptocurrencies, however, are an attempt to create a new form of money and to make it better or replace the money of the past. This is an evolutionary process that takes hundreds, if not thousands, of years. To understand the future of cryptocurrencies, we should look to the past and try to understand the process that changed shiny rocks to plastic cards and whether it is ultimately a positive change.
2. Early Forms of Cryptography
Military communications and espionage have been the motivating factors for some of the greatest advances in cryptography. In the following sections, I’ll go over the early history of cryptography from the time of the Egyptians to the present day, and the enormous role it played in World War II to present day. The first known use of cryptography is found in non-standard hieroglyphs carved into monuments from around 1900 B.C. In the main, these are found to be grave in nature. The Greeks also used a form of cryptography. Demerit, a student of Plato, is said to have used one of the earliest known implementations of a substitution cipher. This cipher involved writing the plaintext on a post of wood, which was then cut into a number of thin slivers. A recipient would then take a rod of the same size and material and then wrap a narrow belt of parchment around it. Coming from this were the roots of a Pub/Sub key system. Photo of an Advanced Encryption implementation. In the Illiad, it is described how Bellerophon sent a message to his wife using a method of writing on a folded tablet which was then covered in wax and sent. When the wife received the message, nothing was visible on the wax, so she heated the wax and the message was revealed which told her to take another man. This also shows evidence of steganographic techniques, as well as the more common methods.
3. Development of Cryptocurrencies
As cryptocurrencies are making their way into the world of e-commerce, they are being scrutinized from the point of view of central banks, tax departments, and legislative bodies the world over. This has been partly due to the emergence of a number of small, poorly documented incidents in which large amounts of bitcoins were used for the purchase of illegal commodities, such as drugs or weapons. Although history reveals this to be an unfair generalization, the choice of bitcoins for these transactions is incidental. Bitcoins were chosen simply for their widely publicized high market value, as opposed to using a credit card to make a purchase, which would provide a temporary increase in credit with the cryptocurrency being used much later. The existence of these incidents, however, has helped to provoke the stigma that cryptocurrency is used exclusively for illegal activity. In light of this, the attack on cryptocurrencies as a whole has been seen as necessary since their inception. An ideology that was borderline indifferent when bitcoin was the single name in cryptocurrency now threatens the diverse market of cryptocurrencies that followed. “Should cryptocurrencies be used or accepted in conventional marketplaces? If not, then why not?” A number of critics suggest that if the convenience and security of cryptocurrencies surpass that of existing methods, then by preventing the use of cryptocurrencies in marketplaces, one may be indirectly acknowledging the incompetence of existing methods in handling consumer transactions.
4. Impact and Adoption of Cryptocurrencies
One of the biggest impacts of cryptocurrencies can be seen in countries with suffering national currencies. For people in Venezuela, Zimbabwe, and various other countries, cryptocurrencies are offering a far more stable and sound form of currency. Owning a stash of BTC or ETH could be the difference between eating three meals a day, and having enough money to leave the country. In Germany, Japan, and Estonia, cryptocurrencies are now recognized as a form of payment and are thus not taxed, assuming the tokens are not converted to fiat. Japan has been a front runner on this, recognizing bitcoin as a legal form of payment early last year. The ability to spend without extra tax obligations is sure to attract more users to spend a cryptos, furthering the impact on daily lives. E-Chat, an ambitious new email platform, talks about the impacts on advertising revenue saying: “If we assumed that cryptocurrency market cap is $2,000,000,000 on January 15th 2018. The typical annual growth rate is 150% and there is no much probability for it to go lower. In this case, the market cap of cryptocurrency industry will exceed $30,000,000,000 by January 15th 2019. It means 1500 million USD will be invested in cryptocoins and ICOs next year. Even if we assume that 80% of this money will be spent on marketing expenses which are 2-5 times higher than the current costs in cryptocoins and ICOs, it gives us 12 billion of potential revenue, which is 8 times higher than the last year figure. This revenue will flow in cryptowallets of ICOs and companies in different coins and tokens”. This alone has immense impacts on global money flows and different forms of valuing for years to come.
Adoption and the impact of cryptocurrencies have been hard to measure. In early years, cryptocurrency is mainly used for black market and illegal activities. It was notorious with its anonymous and decentralized features perfectly fit for criminal activities. But, today cryptocurrencies are beginning to see a greater adoption across the board. As the usability and user interfaces improve, who have only been speculating, buying and selling a variety of altcoins are now having a go at using them for their intended purposes, such as one of the many uses of the blockchain, transferring money borderlessly. Although most of the remittance services using cryptocurrencies are yet to see big success (if any) this is likely to become an increasingly more popular method. Crystal Stranger, president of PeaCounts, a virtual accounting firm, states that “Using blockchain for secure, low-cost money transfers between any countries is an arguably one of the most beneficial use cases for cryptocurrency, and this is a use case that is likely to have a large global impact.”
5. Future Trends in Crypto
One major potential future trend is that cryptocurrency could be the answer to oppressive, national hyperinflation. A well-known and recent example is Venezuela with its rapid and severe inflation in its local currency. It is no secret that some Venezuelans have turned to mining cryptocurrencies as an alternative source of income. This is a long shot, but if a cryptocurrency were to be accepted as a substitute for a hyperinflating national currency, it could potentially stabilize and improve the country’s economic state.
Governments are increasingly paying attention to cryptocurrencies and with it, the concept of digital fiat currencies. Cryptocurrencies could also be the beginning of a future cashless society. As time progresses, it is likely that a few dominant cryptocurrencies will prevail. Fungibility between different cryptocurrencies will likely be resolved by third-party institutions which can exchange one cryptocurrency for another based on market rates. This has already occurred with website services that offer to exchange one cryptocurrency for another, charging minimal fees.
The future of cryptocurrencies remains uncertain. As they are still in the experimental phase, the most likely outcome is that most of them will fail. Since they are not tied to any fundamental real-world value and are subject to volatile price speculation, which essentially makes their future outcome unpredictable. However, all cryptocurrencies share the underlying technology of blockchain, which will push blockchain’s development and acceptance in the mainstream business world. This is evident with many tech companies and banking institutions investing in blockchain technology and research, in the hope that it will make certain processes more efficient and cost-effective.
