The future of crypto: The industry that once focused only on bitcoin is changing rapidly

[ad_1]

When bitcoin was introduced by Satoshi’s article in 2008, it introduced a new and liberating concept – a decentralized peer-to-peer payment system that can be used by anyone, anywhere, and for all. It did not require middlemen or exchange rates to operate and created a single currency that was used around the world for any type of transaction.

But then greed got in the way.

The use case it was supposed to provide has faded somewhat. Instead of focusing on its original intention – a method of payment, the focus shifted to bitcoin as an investment vehicle, a store value, a digital gold.

Merav Ozair, PhD is a leading blockchain expert and Professor of FinTech at Rutgers Business School.

Some of the early adapters of Bitcoin were evangelists, driven by the 2008 financial crisis, who really wanted to make a difference in the world and create a new kind of global financial system. The majority, however, were speculators, who scented an opportunity to make money. Bitcoin started trading on crypto exchanges, as a financial instrument, subject to high price volatility, due to the trading activity of speculators. But it has moved further away from its economic use case – a method of payment – and become more of a speculative financial vehicle.

For bitcoin to be globally suitable as a payment method, it needs to be scalable enough to support such activity. But the blockchain technology that enables bitcoin is still struggling, and developers are constantly looking for solutions for a decentralized blockchain that is both secure and scalable. Until a scalable solution is found and bitcoin is able to deliver its initial use case, speculators have the upper hand. When speculators dictate value, volatility increases, making it even more difficult to adapt bitcoin as a payment method.

Bitcoin’s high volatility has crippled its ability to serve as a payment method and has led to the proliferation of stablecoins. The argument is that business transactions cannot depend on a volatile payment. Businesses need certainty and stability. Bitcoin in its current state cannot provide this stability and therefore make room for the need for stablecoins.

And again, greed got in the way.

Lots of stablecoins have been released, but only a handful are actually used. Stablecoins are mainly used either on crypto exchanges as a replacement for fiat money or on Decentralized Finance (DeFi) applications to obtain an attractive return or return on investments, which are significantly higher than the returns offered by the methods of traditional savings. Yet, like bitcoin, they are not used for day-to-day retail transactions, as a method of payment.

Meta’s (formerly Facebook) announcement in 2019 of its intention to launch a stablecoin not only sparked a conversation among regulators about the status of stablecoins, but also fueled a sense of urgency among nations to protect their sovereignty and accelerate their efforts to develop a central bank digital currency (CBDC). While all nations study and debate the use of cryptocurrencies, stablecoins, and CBDCs, their approach is quite different.

China is launching its own CBDC and illegally using all other cryptocurrencies (including stablecoins), while Japan recognizes bitcoin and other cryptocurrencies as legal property and their use as a method of payment. Other countries are not clear, but they are also calling for regulations on cryptocurrencies and stablecoins, such as the European Commission’s proposed regulation on crypto asset markets (MiCA) or the report of the working group of the US President of Financial Markets (PWG) describing the regulatory landscape for stablecoins.

Federal Reserve Governor Christopher Waller acknowledged in a November speech that “the US payments system is undergoing a technological revolution.” Skeptical of the need for a CBDC, he argued that “payment innovation and the competition it brings is good for consumers.” His comments supported the continued efforts of tech companies to develop stablecoin payment solutions alongside financial institutions.

Interestingly, Waller acknowledged that “in a perfect world there would be a payment system and a payment instrument that everyone uses. Obviously, he was not referring to bitcoin or a decentralized payment system, as he refuted such a scenario of a single payment system, claiming that “in our imperfect world this would confer monopoly power over the system. payment “- referring to a centralized payment system or provider.

Recall that the premise of Bitcoin was to create a “perfect world”, where no entity confers monopoly power over the payment system. It was designed as a “run by the people for the people” payment system. But when bitcoin became a financial instrument, trading on crypto exchanges, people forgot where it all started.

There appears to be a consensus among regulators and policy makers as to the benefits of distributed ledger technology or DLT for financial systems and consumers around the world. However, they do not agree on the use and applicability of DLT. It is very likely that the use of cryptocurrencies, stablecoins, and CBDCs will coincide, and their applicability and importance will differ across jurisdictions and regions.

Asia-Pacific will likely support cryptocurrencies. Mastercard has launched encrypted payment cards in Asia Pacific with the aim of making encrypted transactions transparent. Europe will probably prefer a CBDC. The UK and other Eurozone countries are working tirelessly on CBDC solutions. The United States would likely choose stable coins or an equivalent rather than a digital US dollar.

DLT and blockchain technologies will continue to evolve and become the “rails” of all financial and economic systems and applications. To make it easier for everyday users to interact with these apps, we’re likely to see a dichotomy between utility tokens and payment instruments, such as stablecoins or CBDCs.

Specifically, applications, like DeFi and non-fungible tokens (NFTs) will be launched on decentralized blockchains, using their native token (e.g. ETH, ALGO) to transact on their platforms, while users will interact from seamlessly with these apps, as they currently do with their smartphone apps, using stablecoins, CBDCs, or credit / debit cards – whether in crypto or fiat currency. These platforms will play a vital role in the evolution of the Metaverse universe.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

[ad_2]