In the past year, the value of Bitcoin has grown rapidly, and it has become more and more popular among investors and companies. The future of cryptocurrencies looks promising, but they still have many obstacles to overcome before they become an important part of the financial system.
A threat to traditional currencies?
First of all, a cryptocurrency needs market regulation. However, independent cryptocurrencies (such as Bitcoin) are unlikely to threaten traditional currencies. On the other hand, Bitcoin can continue to develop to replace traditional assets such as gold.
Bitcoin has also benefited from growing concerns that people worry that large-scale printing of currency will depreciate traditional currencies and the news that many well-known investors and companies have begun to invest in cryptocurrencies.
Bitcoin currently has access to financial instruments such as effective futures markets, funds, and other investment products. Therefore, the growth of Bitcoin so far can also be explained by favorable market conditions and increasing market asset recognition.
Can a Bitcoin bubble burst?
Like many other assets, Bitcoin has a high risk of a bubble. However, analyzing the value of Bitcoin is particularly difficult.
For many raw materials, the development of their value can be understood by following changes in demand. For example, when forecasting oil prices, taking into account economic growth and other aspects, it is known how much oil will be consumed.
Bitcoin pricing is more difficult because all price predictions must be based on the assumption that this “currency” will be widely and intensively used in the future. From those who believe that Bitcoin will replace conventional currencies to those who will be banned and rendered worthless, there are a series of very different opinions. The fact may be in the middle.
Headaches for central banks
In recent years, Bitcoin and other cryptocurrencies have taken important steps to becoming recognized investment assets. Last year, Paul Tudor Jones, one of the most successful hedge fund managers in the world, announced that he had invested in Bitcoin.
Earlier this year, the car company Tesla also announced that it had purchased $1.5 billion worth of Bitcoin. The shares of Coinbase, the world’s largest cryptocurrency exchange, are listed on the Nasdaq, with a market value of more than 60 billion U.S. dollars. There are other companies and banks that have announced that they will start to provide examples of different types of cryptocurrency services.
They may not worry about Bitcoin and other independent cryptocurrencies. Large technology companies plan to create stable coins (stable coins) or private cryptocurrencies against traditional currencies at a fixed exchange rate, making them even more troublesome.
The most notable example of the most stable coin is Facebook Diem (formerly Libra), if used by billions of people around the world, it could actually pose a threat to traditional currencies.
Libra was originally scheduled to go into operation in early 2020, but the project has aroused great suspicion in the United States and the European Union, causing delays and conceptual changes. Currently, there are plans to launch a new version of Diem, but these plans are not set in stone, so if the project is delayed, you should not be surprised.
The Diem and Libra cryptocurrency issues are a good example of the reluctance of governments and central banks to accept competition. In particular, the United States has good reasons to do its utmost to maintain the status of the US dollar as the world’s largest currency. Today, almost 9 out of 10 global transactions use U.S. dollars.
The United States, the European Union, China, or any other country with its own currency is unwilling to make Bitcoin or any other cryptocurrency a means of payment.
The main weapon of each country is the regulatory system available to them. By restricting the usefulness or legitimacy of cryptocurrencies in various ways, countries can limit these threats. The European Union has proposed a draft of the legal framework for cryptocurrencies.
The rules are not a bad thing, they are necessary. Regulation and better supervision are essential to make it difficult for cryptocurrencies to be used for various types of illegal activities, to strengthen consumer protection, and improve predictability.
Will local e-currencies appear?
Central banks are aware that the success of cryptocurrencies is partly due to the shortcomings of conventional currencies. Simply put, traditional currencies are ill-suited to meet future service and payment requirements.
This is why many central banks plan to introduce their own electronic money, which will have more functions than traditional currencies today. The Swedish National Bank has ambitious plans to introduce electronic bulls. In China, the authorities have already started using e-yuan for testing.
However, none of these currencies can be used anonymously for cash, and they are likely to be used abroad.
Bitcoin big electricity bill
The major criticism of Bitcoin is that its virtual withdrawal or “mining” consumes a lot of energy. In 2020, the Bitcoin network consumed 77 TWh of electricity, which is the same as the annual consumption in Sweden
The higher price of Bitcoin, the greater the interest in acquiring Bitcoin. Believe that this kind of consumption is a waste of energy. However, it is the extraction process that guarantees the security of the Bitcoin chain, ensuring that no one can sell their Bitcoins more than once. Bitcoin Evolution official website is a next-generation BitCoin trading application. You can trade through this website.
However, this will not change the fact that power consumption is a problem. Today, a Bitcoin transaction requires the energy of up to 700,000 conventional payment card transactions.
People’s growing interest in climate and sustainability issues will cause more and more attention to the environmental, social, and corporate governance (ESG) debates about Bitcoin, and huge energy consumption may become an increasingly serious image of Bitcoin. problem.
At the same time, technological innovations related to cryptocurrencies should not be underestimated. There are reports that in blockchains that are not based on virtual mining, people are turning to more energy-efficient methods to maintain security.
When can you use Bitcoin to pay at the store?
One of the Achilles’ heels of Bitcoin, this phenomenon is becoming more and more obvious-Bitcoin as a means of payment does not function well. Another problem is the large price volatility, which makes pricing difficult.
Currently, the Bitcoin blockchain processes no more than 7 transactions per second. In turn, it takes 10 minutes to confirm the transaction. In contrast, the VISA payment system that has been in use for 30 years can still process 1,700 transactions per second. Although technological progress continues, the production capacity problem has not yet been resolved.
One of the areas where Bitcoin is used as a means of payment is various types of crime. For criminals, Bitcoin’s shortcomings are offset by anonymity. Although they can now be tracked, they are very complex and consume a lot of resources. There are other cryptocurrencies specifically designed to ensure traceability of transactions.
Reducing the illegal use of cryptocurrency will be an important area for further market regulation, which can be used to limit the availability and therefore its popularity.