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- Bitcoin Bull Run
- Cryptocurrencies are a Speculative Asset
- Stablecoin Perspective
- Decentralized Finance
- Privacy Coins
- Scalability
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Cryptocurrencies are decentralized digital assets that use cryptography to secure their transactions and verify the transfer of assets. The main function of a cryptocurrency is to serve as a medium of exchange, like regular currencies. Cryptocurrencies are often traded on decentralized exchanges and can also be used to purchase goods and services.
Cryptocurrencies have experienced a wild ride over the past year, with prices soaring and crashing at various points. Despite this volatility, interest in cryptocurrencies remains high, with new investors entering the market every day. Not to mention, major financial institutions are also beginning to notice cryptocurrencies.
To help you wrap your head around this new asset class, we’ve put together a list of different perspectives on cryptocurrencies from some of the most respected voices in the space. So regardless of the crypto market’s current state, it’s important to keep in mind the long-term potential of this technology.
Bitcoin Bull Run
The most common perspective on cryptocurrencies is that they are in the midst of a bull run. A “bull run” is when prices rise for an extended period. Bitcoin, the largest cryptocurrency by market capitalization, has seen its price increase by over 400% since March 2020. While this rally has caused some investors to worry about a potential bubble, others believe that we are still in the early stages of adoption and that prices have more room to grow.
The most common argument for this perspective is that we are still in the early stages of cryptocurrency adoption. At the same time, there are approximately 3 billion active internet users and 1.7 billion active social media users.
Furthermore, institutional investors have only just begun to enter the space. In the past year, we’ve seen major corporations strategy invest billions of dollars in Bitcoin. We’ve also seen the launch of several cryptocurrency products by traditional financial institutions. As more institutional investors enter the market and awareness of cryptocurrencies continues to grow, it’s reasonable to believe that prices will continue to rise.
Cryptocurrencies are a Speculative Asset
While the first perspective argues that we are in the midst of a bull run, a second perspective argues that cryptocurrencies are primarily a speculative assets. A speculative asset is an asset that is purchased not for its underlying value but for the potential of future price appreciation.
Cryptocurrencies don’t have any intrinsic value. That is, they don’t generate any cash flows, and they aren’t backed by any assets. This lack of intrinsic value makes them very volatile and prone to large price swings.
Investors who take this perspective often argue that while there is potential for large price appreciation, there is also a very real possibility that prices could go to zero. This risk is often magnified by the fact that most cryptocurrencies are illiquid, meaning they can’t be easily sold for cash.
Stablecoin Perspective
While Bitcoin and other major cryptocurrencies have experienced explosive growth, there’s been an equally impressive rise in stablecoins. Stablecoins are a type of cryptocurrency that is pegged to a stable asset, like gold or the US dollar. This peg helps to stabilize the price of the coin and minimize volatility.
Stablecoins provide an amazing opportunity to invest in the cryptocurrency market without volatility. And with the current Stablecoin interest rates, you can make a very attractive return on your investment. Not to mention, Stablecoins are quickly gaining adoption as a means of payment and are being used by major corporations like Facebook, IBM, and Microsoft.
The most popular stablecoin is Tether (USDT), which is pegged to the US dollar. USDT is often used for trading other cryptocurrencies because it allows investors to avoid the volatility of the crypto markets while still enjoying the benefits of blockchain technology. Another popular stablecoin is USD Coin (USDC), which is issued by Circle and backed by the US dollar. USDC can be used in a similar way to USDT and is also available on major cryptocurrency exchanges.
Some believe that stablecoins will eventually replace fiat currencies as the primary form of payment. Stablecoins have the potential to provide the same level of security as fiat currencies, while also being faster and more efficient to use. In addition, because they are not subject to government control, stablecoins could provide a level of financial freedom that is not possible with fiat currencies.
Decentralized Finance
Decentralized finance (DeFi) is a rapidly growing sector of the cryptocurrency industry that is built on the Ethereum blockchain. DeFi applications are open source and permissionless, meaning anyone can use them without having to go through a centralized authority.
The most popular DeFi applications are protocols that allow users to borrow, lend, and trade cryptocurrencies in a decentralized way. These protocols are often called “decentralized exchanges” or “Dexes.” The most popular Dexes include Uniswap, Maker, and Compound. Since DeFi protocols are built on the Ethereum blockchain, they are often referred to as “Ethereum-based” or “Ethereum-powered.” This is because Ethereum is the only blockchain that currently supports smart contracts necessary for DeFi applications to function.
DeFi could eventually replace traditional financial institutions like banks and stock exchanges. This is because DeFi protocols offer many advantages over traditional finance, including lower fees, greater transparency, and better security. In addition, DeFi protocols are available to anyone with an Internet connection, regardless of their location or economic status.
Privacy Coins
Privacy coins are a type of cryptocurrency that is focused on privacy and anonymity. The most popular privacy coin is Monero, which was launched in 2014. Monero uses many different technologies to make it impossible to trace transactions. This includes hiding the sender, receiver, and amount of each transaction.
Privacy coins are often used by criminals because they make it very difficult for law enforcement to trace activity. However, privacy coins can also be used for legitimate purposes, such as keeping financial information private. Keep in mind that even though privacy coins offer a high level of anonymity, they are not completely untraceable.
Scalability
Scalability is the ability of a blockchain to handle a large number of transactions. Bitcoin, for example, can currently process around seven transactions per second. Ethereum can process around 15 transactions per second.
The scalability of a blockchain is often limited by the amount of data that can be stored in each block. For example, Bitcoin blocks are currently limited to 1 MB in size. This means that the Bitcoin blockchain can only store around seven transactions per second. Ethereum blocks are currently limited to 2 MB in size, which means that the Ethereum blockchain can store around 15 transactions per second.
One solution to the scalability problem is “sharding.” This is a technique that allows a blockchain to store data in multiple “shards,” or small pieces. Ethereum is currently working on a sharding solution called “Ethereum 2.0.” If this solution is successful, it could eventually allow the Ethereum blockchain to process millions of transactions per second.
As you can see, the future of cryptocurrency is very bright. With so many different projects underway, it’s hard to predict exactly what the industry will look like in five or ten years. However, one thing is for sure: the cryptocurrency industry is here to stay, and it will only grow bigger and stronger in the coming years.
Thank you for reading!