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Future of Cryptocurrencies

It is no secret that ever since the Bitcoin boom, the general awareness around all forms of cryptocurrencies has grown.

It is no secret that ever since the Bitcoin boom, the general awareness around all forms of cryptocurrencies has grown. What started with just one coin has now grown to over a thousand different types of coins and the number of coins continues to increase every day. While it is expected that a majority of these cryptocurrencies might eventually fizzle out, there are some who have the potential to change the very way in which our economic systems function.

Let us take a very quick look at the history of cryptocurrencies – the present state of where they are – and what the future holds for them.

The History of Cryptocurrencies:

To understand the future, it is critical to know the past.

Bitcoins started off this grand cryptocurrency revolution back in early 2009. Since then there have been a number of new introductions in the cryptocurrency space and names like Ethereum and Neo have been doing really well – and they look like they’re here for the long run.

Also read: What are Altcoins

Basically, cryptocurrencies started off in 2009 with the arrival of Bitcoin. Bitcoin was created by a man (or a group of people) who goes under the pseudonym, Satoshi Nakamoto. As of now no one really knows who Satoshi Nakamoto is. However, he holds about a million Bitcoins and it is critical for him to maintain his privacy.

The growth of Bitcoins was painfully slow in the early years – but over time, as markets grew confident of the coin’s long-term success, the value of Bitcoins started to boom. Here’s a quick look at the historic growth of Bitcoins:

Bitcoin started off in 2009 and it was valued at $0.

In the entirety of 2020, bitcoin didn’t even touch $1 and it’s the highest point was $0.39

Bitcoin touched $29.58 in 2020

Bitcoin crossed $210 in 2020

2020 was a big year as Bitcoin crossed the $1,000 mark in November.

In 2020 the highest value of the currency stayed about $985

2020 saw bitcoin fall to a low of $219 while the highest point was $461

Bitcoin crossed $950 again in 2020

2020 has been the best year for bitcoin as it started off with about $950 and crossed $7000 in late October.

The Present State of Cryptocurrencies

As we write this, Bitcoins have peaked to an all time high. This is the October of 2020 and the current Bitcoin value is flickering between $6000 – $7000. Questions are already begin asked and fingers are being pointed at alternate currencies and the future of altcoins amid a major surge in bitcoins.

Bitcoin witnessed a major hard fork in the August of this year when Bitcoin Cash was created. Barely a few months since then, another fork is all set to take place as Bitcoin Gold is all set to arrive.

Presently, the awareness around cryptocurrencies is at an all-time high and while it has made it to the attention of many tech-savvy users as well as those interested in investment opportunities, it is yet to become ‘mainstream’. Some governments have begun to pass laws around the use of cryptocurrencies and making them taxable and accountable.

However, the biggest problem that governments have with cryptocurrency users is that they possess unaccounted income. The money stored in exchanges and wallets go unaccounted for, especially if the transaction takes place in the form of cash, or for certain purchases. Moreover, the online drug trade is also thriving on cryptocurrencies – which is another big reason that governments want to regulate this alternative economy.

At the time of this writing, the cryptocurrency trade still functions as a largely unregulated market – which is bound to change with the passage of time and increase in awareness.

The Future of Cryptocurrencies

If the markets continue to be bullish and investors continue to back cryptocurrencies for the long run, there is a very good chance that there may come a point of time when blockchain based economies might become a reality.

Instead of the real-world economy absorbing the cryptocurrencies as a part of its own, a day might come where this parallel economy absorbs the real-world economy. A blockchain based economy fuelled by cryptocurrencies could be beneficial for a number of reasons.

This cryptocurrency based economy will ensure that the money that comes from the government funds is invested for all the right reasons and is sent to the right people. This will further improve accountability and transparency, where each and every transaction will be publicly accounted for and can be tracked by anyone.

While a number of merchants have already begun to accept bitcoins, they’re far from being as popular as other mainstream payment services. In the long run, given the markets of cryptocurrencies stay stable or flourish, it is expected that acceptance will become more mainstream and even major players like Amazon and Walmart may begin to accept cryptocurrency tokens.

Why Are Cryptocurrencies Making Governments Uncomfortable

As of now no government has officially accepted the cryptocurrency system. While some banks have begun to take the step forward, governments are still examining this new, digital economy from all sides before taking any step forward.

There are many aspects about cryptocurrencies which make governments uncomfortable, and till all these issues are resolved, it is very unlikely that governments are ever going to accept cryptocurrencies. Some of these issues are:

Tax Evasion: One of the biggest problems that cryptocurrencies impose is that of unaccounted income. If your money is stored in your bank accounts, it can be sniffed out by the government. The tax authorities can raid physical property to find out hidden cash – but what about a digital wallet that they do not know exists? This gives rise to unaccounted income as well as money laundering, where cash can be exchanged for cryptocurrencies without a trace!

Decentralized Nature: The decentralized nature of the cryptocurrency system is again something that makes the governments uncomfortable as there is no central authority that can be held accountable. Moreover, existing Cryptocurrencies might lose value and newly introduced cryptocurrencies might gain value at any given point of time – which is very unstable for a national economy to function.

Instability: As discussed above, the unstable nature of cryptocurrencies is one of the biggest reasons why governments are unwilling to adapt it for official transactions. When it comes to fiat currency, the currency can be valued or devalued depending upon the need and the nature of the economy. The cryptocurrency markets do not really give governments this kind of a control.

Till these questions are addressed, the future of cryptocurrencies will remain doubtful.

Cryptocurrency comparison

Compare cryptocurrencies against each other and start trading cryptocurrency CFDs with IG. We offer nine of the most popular cryptocurrencies, including bitcoin, ether, litecoin, ripple, EOS, stellar (XLM) and NEO. The differences between each cryptocurrency can offer insights into how the value of each coin will change over time.

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Cryptocurrency comparison table

The table below shows how the cryptocurrencies IG offers compare. Further down we explain how these factors may influence the cryptocurrencies’ valuations, and why they matter to traders.

Bitcoin (BTC) 1 Bitcoin cash (BCH) 1 Ether (ETH) 1 Litecoin (LTC) 1 Ripple (XRP) 2 EOS (EOS) 3 Stellar (XLM) 4 NEO (NEO) 5
Launch 2009 2020 2020 2020 2020 2020 2020 2020
Circulating supply >17 million >17 million >102 million >58 million >40 billion >906 million >18 billion 65 million
Maximum supply 21 million 21 million No upper limit 84 million 100 billion (pre-mined) No upper limit No upper limit 100 million
Current mining/release rate 12.5 per block 12.5 per block 3 per block 25 per block 1 billion per month Up to 5% inflation per year Up to 1% inflation per year Up to 15 million per year
Transactions per second
(maximum)
7 60 20 56 1500 2800 1000 1000
Network n/a n/a Ethereum n/a RippleNet EOS.IO Stellar NEO
Block time (approximate) 10 minutes 10 minutes 15 seconds 2 minutes 30 seconds Near instant 0.5 seconds 5 seconds 15 seconds

Bitcoin vs other major cryptocurrencies

Cryptocurrencies are virtual currencies which operate independently of banks and governments but can still be exchanged – or speculated on – just like any physical currency. Launched in 2009, bitcoin was the first decentralised cryptocurrency. Since then, thousands more cryptocurrencies, known as altcoins, have launched.

While bitcoin remains the market leader, cryptocurrencies including bitcoin cash, bitcoin gold, ether, litecoin, ripple, EOS, stellar (XLM) and NEO could challenge in the future because of rising demand, expanded applications, and technological advances.

Bitcoin (BTC)

The original, and (for now) the biggest by market capitalisation. It was launched in 2009 by Satoshi Nakamoto, a pseudonym for the mysterious person or group who created it, to secure payments across a peer-to-peer network. It aims to eliminate the need for a trusted third party, democratise money and ensure that transactions are anonymous.

Biggest pro: best known cryptocurrency
Biggest con: slow transaction speeds, requires specialist mining equipment

Bitcoin cash (BCH)

Bitcoin cash is a standalone digital currency, created as an offshoot of bitcoin in August 2020 by a ‘hard fork’. This was in response to the slowdown in bitcoin transaction speeds and the network’s inability to reach consensus on proposed upgrades. Bitcoin cash’s maximum block size is 8mb, compared to 1mb for bitcoin, enabling it to process more transactions each second.

Biggest pro: faster transaction times than bitcoin
Biggest con: requires specialist mining equipment

Ripple (XRP)

Ripple is a cryptocurrency that underpins a payment network called RippleNet – used by major banks and financial institutions including Santander and American Express. Ripple operates in a very different way to other digital currencies, which has led some to question its credentials as a true decentralised cryptocurrency.

Biggest pro: lightning fast transaction speeds
Biggest con: RippleNet can be used without its underlying cryptocurrency, ripple

Stellar (XLM)

Stellar is a payment network that operates in a similar way to RippleNet and can process transactions in multiple currencies. It is underpinned by a cryptocurrency called lumens (XLM), which is commonly referred to as ‘stellar’ (including on the IG platform). Lumens can be used for payments on the network but also play an anti-spam role, as each transaction requires a small transaction fee, which is paid for in the cryptocurrency.

Biggest pro: integrates with banks, used to process transactions in multiple currencies
Biggest con: cryptocurrency not as widely recognised as some other

Ether (ETH)

Ether is the cryptocurrency of the Ethereum network, which enables users to code and release their own ‘decentralised applications (dapps)’ and create ‘smart’ contracts that automatically enforce their clauses. Small amounts of ether are destroyed as transactions are processed, preventing hackers from spamming the network.

Biggest pro: use beyond cryptocurrency on the Ethereum network, fast transaction speeds
Biggest con: uncapped supply means that it could be inflationary

Litecoin (LTC)

Litecoin is designed to be ‘silver to bitcoin’s gold’, according to its founder Charlie Lee. And just as the supply of silver outstrips the supply of gold, Litecoin’s maximum supply of 84 million coins is four times greater than bitcoin’s. There are also some fundamental technological differences between the two.

Biggest pro: fast transaction speeds
Biggest con : low market capitalisation compared to bitcoin

EOS (EOS)

EOS is the cryptocurrency of EOS.IO, a blockchain platform that is said to replicate the key functionality of a computer’s hardware and operating system. It provides tools and services for developers to build dapps, including user accounts, authentication and databases. Responsibility for processing and other operations is distributed across the network, which its designers claim will enable it to scale to millions of transactions per second in the future.

Biggest pro: integrated with the EOS.IO network, fast transaction speeds
Biggest con : uncapped supply means that it could be inflationary

NEO (NEO)

NEO is the name of both the cryptocurrency and the network it runs on. This network is like Ethereum in that it enables users to create decentralised apps and smart contracts. However, what sets NEO apart is that its network is currently tightly controlled by ‘NEO Team’, who require users to have a verifiable identity on the network.

Biggest pro: integrated with the NEO network, compliant with regulations in many jurisdictions
Biggest con : may not be truly decentralised

Why do differences between cryptocurrencies matter to traders?

The differences between cryptocurrencies matter to traders because they give vital clues as to how supply and demand for each coin may change over time, in turn influencing market prices and how cryptocurrencies are traded.

Supply

Circulating supply and upper limit

The supply of coins plays an important role in setting market prices. All other things being equal, the scarcer the coin, the more valuable it should be. Bitcoin and bitcoin cash each have an upper limit of 21 million coins, while Litecoin and ripple have expanded maximum supplies of 84 million and 100 billion respectively. These coins will be deflationary once all the coins have been mined or released, while coins like ether – with no fixed limit – have the potential to be inflationary, depending on how much is ‘burnt’ or lost.

Cryptocurrency mining and release rates

The supply of coins changes over time as new coins are mined or released. Mining is the process by which ‘blocks’ of transactions are verified, and new coins released. Bitcoin is currently mined at a rate of 12.5 new coins for every verified block, with the reward halving roughly every four years (the final bitcoins will be mined around the year 2140). Ripple coins, on the other hand, were pre-mined by its founders and are currently being released at a rate of one billion per month.

Demand

Reputation

Despite having fewer applications than many of its newer competitors, Bitcoin’s value has soared over the last few years, and it remains the biggest cryptocurrency by market capitalisation. This suggests that reputation remains an important factor in cryptocurrency valuations. Press coverage is likely to be an important factor here, with negative press – for example following a major wallet hack – tending to have a negative impact on prices.

Decentralised applications

While bitcoin, bitcoin cash, and litecoin are standalone cryptocurrencies, ether and ripple exist as part of wider networks with expanded applications. If the popularity of these networks increases or they are adopted by mainstream businesses, demand for their underlying cryptocurrencies could surge.

Transaction speed and scalability

As adoption of cryptocurrencies accelerates, transaction speeds and their ability to handle a high volume of transactions is likely to come under increased scrutiny. Scalability could also be influenced by blockchain size and security, as these factors will affect the profitability of mining, speed of the associated network, and willingness of users to buy and use coins. Traders should therefore pay attention to software updates and forks to see how scaling technology evolves.

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