Cryptocurrencies like BitCoin and Ethereum are on the rebound. But what will happen to these currencies in the long term?
Money seems to continually evolve, driven by technology. For example, many of us today are caught off guard if a retail shop or a restaurant has a sign at the cash register which says “cash only”. This is just one indicator that paper money and coins are gradully becoming obsolete.
Today, transactions are largely tied to government currencies like the Canadian Dollar or the Mexican Peso. The amount in your bank account is tracked by your bank and when you perform a transaction, the bank is responsible for removing the currency from your account and transferring it into the account of the person you’ve done business with.
Cryptocurrency like traditional currency has value that is generally accepted by the users that elect to participate in a digital economy. Cryptocurrency values, like traditional currency, are subject to investor speculation and do fluctuate in value due to world events, investor confidence and technology changes in the digital economy.
While cryptocurrency is similar to traditional currency, there are a few key differences which have grabbed the world’s attention:
- cryptocurrencies are not controlled by any government, however some are decentralized while others remain controlled by a single entity
- cryptocurrencies are generated by participants in the cryptocurrency community using software and hardware designed to “mine” for coins.
- cryptocurrencies use cryptography to secure transactions and control the creation of new “coins”
- cryptocurrencies use various timestamping schemes to avoid the need for a trusted third party, such as a bank.
All transactions are recorded on a block-chain ledger which is stored on a decentralized virtual machine hosted by multiple crypto currency wallets
Cryptocurrencies are here to stay
Cryptocurrency technology is in it’s infancy, but is here to stay. Will BitCoin and Ethereum remain on top?
Powerhouses like Facebook, Google, Paypal and Apple all see the benefit of cryptocurrencies and are driven by increasing their own profit. Both Google and Apple have introduced wallet apps to conducting transactions in real time from mobile device to mobile device that excludes the involvement of your bank. This increases our reliance on Android Smartphones and iPhones which in turn benefits the companies that provide these tools.
What this means for open source peer-to-peer cryptocurrencies is that the future is uncertain, because as we have seen in the past, it is not necessarily the best solution that wins, but the solution with the best marketing. In the short term, it may be worthwhile to invest a few dollars into crypto currencies, but not your whole nest egg.