Cryptocurrencies are in the news once again as prices for coins like Bitcoin crash ever further on the back of institutional sell-offs, recession fears and the looming prospect of rising interest rates. Stocks in crypto businesses have followed in lockstep, putting the whole ecosystem of cryptocurrencies in jeopardy.
However, many still believe that cryptocurrencies still have the potential to revolutionise the financial industry and upend how we buy and sell. To understand why, we’ll look at what the originally stated objectives of cryptocurrencies and Bitcoin, and the things that crypto cash proponents point to when defending their argument that coin will eventually be king.
What is the main purpose of cryptocurrency?
Since they were first conceived, the main stated goal of cryptocurrencies has been to cut financial institutions out of payment transfer in favour of a decentralised, peer-to-peer model. In Satoshi Nakamoto’s white paper, Bitcoin: A Peer-to-Peer Electronic Cash System, they argue that the current system is flawed since non-reversible payments are not possible, with this impacting the freedom of citizens to trade with one another without the continual oversight of banks and governments.
Bitcoin and other cryptocurrencies differ from the opaque transaction systems currently used by publicly broadcasting every transaction and recording it on a public ledger (the blockchain) that can’t be edited by any one user.
Transactions are based on cryptography, not trust in a bank to behave correctly. As Nakamoto puts it: “The root problem with conventional currencies is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”
Why will cryptocurrencies like Bitcoin be eventually used as currency?
Nowadays, the uses of cryptocurrency are broadening. Firstly, as the price of currencies has risen and fallen, spread betting sites are now offering users the opportunity to use crypto for spread betting transactions. As the value has gone up, many have used crypto as an asset to buy and sell for profit. And many businesses have sprouted up based on blockchain technology.
All these are well and good, but what about the original objective? Well, many still believe that, even as the price yo-yos, you’ll be able to buy a cup of coffee with Bitcoin in the future.
The main reason for this is the growth in positive institutional moves regarding crypto. Banks, hedge funds, and even businesses like Tesla have all made crypto investments in the past few years, signalling a sea change in how crypto is perceived.
Institutions like Deutsche Bank predict that cryptocurrency users will quadruple by 2030, arguing that regulation of the crypto markets will stabilise the value of coins – after all, who can trust to pay with a coin that is worth a chocolate bar one day and a Michelin-starred meal a month later! This will make them more likely to be seen as a legitimate currency and therefore much more likely to gain mass adoption.
Of course, all this is still speculation: only time will tell whether cryptocurrencies are adopted as a day-to-day means of paying for products and services and Satoshi Nakamoto’s dream becomes reality.