Everything you need to know about Cryptocurrency Pt. 2

It looks like cryptocurrency is going to stay around for a while as the world looks more and more into the future and prepares for a world that is powered by technology and digital innovations. From Tesla cars to the possibility of a colony in the ‘Red Planet’, Mars in a couple of decades or less; the use of digital payment systems known as cryptocurrencies appears to be one that will play a crucial role in shaping not just today, but also the future.

In this second installment on Cryptocurrencies, we take a look at some other important facts about the new rave of economic transactions that are gradually inching into our daily business and consumers' lives. 

Presently, there are more than 10,000 different cryptocurrencies that are being traded publicly, according to data provided by CoinMarketCap.com, a market research website. And many more cryptocurrencies continue to surface, raising capital through initial coin offerings, or ICOs. 

The total value of all cryptocurrencies as of July 9, 2021, was more than $1.4 trillion, though down from April's high of $2.2 trillion, from CoinMarketCap statistics. In the same period, the total value of all Bitcoins, which is the most popular digital currency, was put at about $630 billion, a fall from its April high of $1.2 trillion.

For a payment system that is not tangible; one cannot help but wonder the reason for the high appeal for Cryptocurrencies. However, Cryptocurrencies appeal to their supporters for different reasons. Following are some of the most commonly adduced reasons:

First, supporters of cryptocurrencies such as Bitcoin see them as the currency of the future and are rushing to buy them now, presumably before they become too valuable for their reach.

Second, some supporters particularly like the fact that cryptocurrency ejects national and international central banks from managing the money supply since historically, these banks tend to lower the value of money via inflation

Other supporters like the security that comes from the blockchain technology which is behind cryptocurrencies transactional system, because it’s a decentralized processing and recording system guaranteeing more security than traditional payment systems

While Cryptocurrencies may have shot up in value; many investors, however, see them as mere speculations, not real investments since cryptocurrencies, much like real currencies, do not generate cash flow. So, for an investor to make a profit, someone has to be willing to pay more for the currency than you did.

That’s what’s known as “the greater fool” theory of investment. Put that side-by-side against the well-managed business, which builds its value over time by growing the profitability and cash flow of the operation. Thus some respected voices in the investment community, like the renowned investor Warren Buffet, has advised would-be investors to stay clear of them suggesting that their value will not survive the test of time. 

For those who consider cryptocurrencies such as Bitcoin as the currency of the future, it should however be remembered that a currency needs stability so that investors and consumers can ascertain what a fair price is for goods. Unfortunately, Bitcoin and other cryptocurrencies have not been known to be stable through much of their history. For example, while Bitcoin traded at close to $20,000 in December 2017, its value then plummeted to as low as about $3,200 a year later; only to trade again at record levels by December 2020.

The price instability creates confusion because if Bitcoins might be worth a lot more in the future, people are going to be less inclined to spend and circulate them today, making them less feasible as a currency. Why spend a Bitcoin when it could be worth three times the value next year?

Whatever are the grey areas regarding this technology-driven system; cryptocurrencies, for now, continue to generate enough buzz to keep us interested in the goings-on in the crypto world.

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