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Famous 19th-century newspaper editor Horace Greeley once urged young Americans to head west in search of wealth and happiness. Elon Musk tweets the word Doge with the same implied meaning, if not the same literary flair.
Dogecoins over 12,000 percent executed since the start of the year are an improbability among the odds, that is, it’s just another crypto story. Over the past few years, the cryptocurrency world has seen big rises, dramatic drops, bubbles forming, bursting and reforming, scams, personalities and most of all, sudden wealth. At the same time, crypto has become a new industry, attitudes towards its long-term outlook have changed dramatically, and a new role has emerged for businesses and governments. Since Bitcoin became a phenomenon in the early 2010s, it’s been easy to get carried away by the almost constant headlines, the growing crypto media and influencer market, and the overwhelming lure of making millions overnight. next day.
But speculation is only part of the story and in this case not the most interesting. Cryptocurrency is greater than the sum of its transactions, it’s a new world, supported by an underlying technology called blockchain, an immutable record-keeping system that is shared across a network of computer systems and has applications to both in finance and beyond. Interest in cryptocurrency has grown so rapidly that many governments are considering launching their own encrypted digital currencies as a response to criticisms of existing monetary systems, while a number of companies have made headlines. by announcing that they would accept cryptocurrency as a form of payment. . Legendary financier Carl Icahn, once a skeptic, recently said he could invest a substantial amount in cryptocurrency, which represents a bigger shift in mindset in the financial world.
To understand the real action in crypto, it may be best to stop following the money. The social media show and the latest price action are gaining attention, but the biggest crypto fans believe in the movement due to a mistrust of governments and their tax policies, as well as a desire for alternative investments in a market where many assets are perceived as bloated. . Crypto is entering a new stage, a stage that demands a more serious examination of its innovations, challenges and future.
The negatives are real, but so are the benefits
Critics of cryptocurrency, especially Bitcoin, are rife as are their critics. From the start, Bitcoin has been challenged with being a doomed fixed currency, having no real value or use, its slow and expensive transactions, and its links to criminal activity and scams. There has been a revolving door of questionable Initial Coin Offerings (ICOs) involving internet celebrities, as well as stories of currency trading collapses and other scandals. Separated from the nefarious activities are more modern critiques focused on the massive environmental cost of mining crypto and its role in the semiconductor shortage.
A recent Harvard Business Review article cited a Cambridge Center for Alternative Finance (CCAF) study which found that Bitcoin currently consumes around 0.55% of global energy production, which they say is roughly the equivalent of a country the size of Sweden. The article adds that opinions on how much energy Bitcoin should use are skewed by what one thinks, and arguments can be made about the energy cost of a number of activities, but it does not no doubt the impact is remarkable. Bill Gates highlighted the negative impact in an interview with the New York Times, before adding that he could see a future in which cryptocurrency mining is powered by renewable energy.
In March, CW Chung, a researcher at securities firm Nomura, was widely quoted by the media as saying the semiconductor shortage had been exacerbated by cryptocurrency mining. Chung noted that in a previous Bitcoin rally, one-tenth of the sales made by chip giant TSMC went to coin miners. The industry itself has validated this problem, with NVIDIA adding anti-crypto-mining technology in its latest GeForce RTX 3060. The chip will reduce its own capacities by 50% if it detects that it is being used to mine cryptocurrency. popular Ethereum.
These challenges exist alongside great potential and rampant speculation that has been amplified by social media, influencers and the isolation of the pandemic. Short-term thinkers may see a big advantage in massive returns on a piece based on a bit of internet humor, but the more serious players in the market are looking at smart contracts, new ways of banking and lending. , and even the formation of digital currencies. .
Some industry watchers have noted that Coinbase’s initial public offering in April is a sign that the crypto is leaping forward. After the IPO, financial analyst Peter Atwater told Bloomberg: When the pickaxes and shovels are touted as your better traitor than the gold mine itself, the rush is over. Coinbases CEO Brian Armstrong saw the IPO as a legitimizing event for the industry, an event that would make cryptocurrency part of the financial world. By gaining more formal acceptance, the crypto has the opportunity to evolve from its inception and focus on achieving the financial and social goals that have made it so attractive.
Go from speculation to application
Many companies have worked to develop offerings involving blockchain technology distinct from cryptocurrency. Everyone, from IBM and Oracle to Google and Amazon Web Services, has developed blockchain applications and solutions ranging from supply chain to healthcare to transaction authentication. But for crypto in particular, the world is a little different.
Coinbase, billed as the largest cryptocurrency exchange, is a starting point and an obvious starting point. The public needs a place to buy and sell this new currency, and Coinbase is one of many that has stepped in to fill the gap. Exchanges are the start of providing a marketplace to trade traditional currencies for crypto, but the next wave, based on blockchain technology, will involve payments, loans, and even full banking. The concept of DeFi, short for decentralized finance, involves a variety of financial services applications, most often Ethereum which has an increasingly popular platform. DeFi has the potential to change the way we think about traditional lending, creating peer-to-peer blockchain lending networks that can disburse funds in an instant, rather than working through the established banking system.
And that’s just the blockchain-based financial apps. Decentralized ledger technology can be used for purposes that go beyond cash, including proof of ownership. This was revealed more recently in another highly speculative and media craze, Non-Fungible Tokens (NFTs). While spending $ 500,000 on the ownership of the Disaster Girl meme sounds more like some sort of Beanie Babies-like mania in the 1990s than the path to something that looks like real value, the underlying goal of ’empowering artists is meritorious. There are companies that create blogs, games, security apps, and other apps all using the same technology behind crypto as a platform.
Predicting the future of crypto as a practical technology might not be as rewarding as predicting the next bubble in the short term. But the applications and concepts developed on the blockchain hold promise for disrupting the established financial services industry, as well as the potential for negative real-world consequences if safety and environmental concerns are not addressed. If the impact of its applications on commerce is a bit like its impact on culture, the following will keep us on the lookout.
Adam Rigglian is vice president.
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