Cryptocurrencies have come a long way since the inception of Bitcoin, just over 12 years ago. What began as a tech novelty for niche enthusiasts slowly crept its way into the mainstream financial ecosystem.
Today, blockchain products are everywhere. Cryptocurrencies are making the news for their incredible gains while disruptive solutions are streamlining almost every industry known to man. And as an investor, it is only natural to try to make out the best of this financial revolution.
To help you achieve this, this article will paint a bigger picture of the future of digital currency. To this end, we will explore the trends in crypto regarding their future usage and adoption. Additionally, we touch upon some crucial developments in the industry that could influence the future of digital currency.
Let’s begin with a quick overview of the market and some crucial events that got us where we are today.
- The state of affairs in 2021 – where are we now?
- What’s the best cryptocurrency for the future?
- The future of digital currency – what to watch out for
The state of affairs in 2021 – where are we now?
The COVID19 pandemic shone a new light on the weakness of our traditional monetary system. This led to a rocket-fueled bull run for crypto, rivaled only by the 2017 ICO craze. Right after markets crashed in March 2020, the trend flipped into a bullish. This positive momentum has accelerated considerably since January 2021.
Some of the main takeaways of the current cycle are:
- The Bitcoin halving took place in May 2020.
- Bitcoin finally reached its ATH of $20.000 and has since more than tripled in value.
- The crypto market reached a value of $1 trillion just over a decade since its inception.
- It took only 3 months after that for the market to pass the $2 trillion bar.
- The decentralized finance (DeFi) ecosystem grew by 5000% in the last 12 months.
- NFTs became the next big thing for opportunistic investors, driving demand for related cryptocurrencies even further up.
- Institutional investors are becoming a major player in a market usually driven by retail investors.
- Coinbase, one of the largest crypto exchanges in the world became the first crypto company to be publicly traded on NASDAQ.
Having said that, in a market filled with new players, projects, updates, and regulations, many find it challenging to look ahead and accurately picture what might await. So, what does the future of digital currency look like? Let’s find out.
What’s the best cryptocurrency for the future?
This million-dollar (or should we say trillion?) question is impossible to answer accurately. Different cryptocurrencies have different use cases. This is why there can’t be a universal winner in the future of digital currency.
However, we can explore some of the important factors that will inevitably play a crucial role in their long-term viability.
Cryptocurrencies as a store of value
Cryptocurrencies, and especially Bitcoin, have gained a lot of traction lately regarding their role as a store of value. There are multiple reasons for this, and many have emerged because of the coronavirus economic crisis. To name a few:
- Pandemic-related lockdowns confined billions of people to their homes. This reduced their options to transfer their traditional store of value assets into usable currency when they most needed it.
- Government bailout programs, injecting trillions of FIAT in the current economy leading to premature massive inflation. As a result, this diluted the value of people’s savings and diminished the purchasing power of traditional currencies.
- A general sentiment of economic instability all around the globe. Unemployment in developed countries reached record numbers, which leads to creditor insolvency and another banking crisis just waiting to happen.
These events have pushed both retail and institutional investors to look beyond traditional stores of value for hedging against inflation.
Bitcoin, being deflationary by design, was the perfect answer to these economical woes. First, it’s easy to transfer and store, unlike gold or other precious metals. Moreover, it requires no paperwork or intermediaries and is easily accessible to anyone in the world.
Add to these benefits the predictable and limited supply, and you have a winner when it comes to a flexible and appreciating store of value.
As less and less Bitcoin are made available over time for purchase, this trend will only strengthen.
The future of digital currency as a payment method
Bitcoin was once intended to become a digital peer-to-peer currency for everyday transfers. However, due to design choices (e.g. an intentionally slow network), it has become the ultimate store of value instead.
Some altcoin trends are showing us that the future of digital currency as a method of payment could be shaped by:
- Decentralized payment networks – Many alternative cryptocurrencies already provide near-instant transfers for a fraction of the price of Bitcoin or traditional bank transfers. The Ripple and Stellar networks are just a few examples of projects that are trying to provide a quick, cheap, and secure ecosystem for exchanging value over the internet.
- Government-issued CBDCs – A large number of governments have entered a race to release their own digital currencies to support their existing monetary systems. Some like the Chinese digital yuan, have already entered massive testing phases. This has pushed the two other leading governments to accelerate development for the digital Euro and the digital Dollar.
- Stablecoins – One of the most important elements for cryptocurrency usage as a method of payment is their adoption by merchants. The increased usage of stablecoins could help immensely in this regard.
- Stablecoins are cryptocurrencies pegged 1 to 1 to existing real-world like the US dollar. As such, they provide the advantages of a trustless and secure blockchain environment. Simultaneously, they allow users to avoid the volatility of the crypto markets.
- Payment processor integration – Payment processors have been a major in the current bull run, such as PayPal integrating crypto in their digital wallet last October. This functionality has been recently upgraded allowing its 350+ million users to use cryptos as a payment method in their network.
While not all solutions are as decentralized as we’d like them to be (e.g. CBDCs, PayPal), we can safely assume that their usage as a currency will increase over time.
Verification of ownership through NFTs
With the introduction of smart contracts, blockchain technology has become much more than just a vessel for transferring digital coins over the internet.
Smart contracts have given us the ability to create proprietary cryptocurrencies through the ERC-20 protocol. But more importantly, they made non-fungible tokens possible through the ERC-721 standard.
NFTs can be used to tokenize anything of value – pieces of art, real estate, even human DNA sequences, and permanently register them on the blockchain. Tokenized assets on the blockchain inherit the numerous advantages of the digital decentralized ledger, including:
- Guaranteed ownership and traceability of an asset.
- Providing liquidity for highly illiquid assets (real estate, art).
- Lowering the investment barriers through fractionalized NFTs.
- Allowing for a decentralized transfer of property, making the process more time and cost-efficient.
With that said, there have been some legitimate concerns regarding their impact on the environment. Currently, most NFTs are using the Ethereum network, making them energetically inefficient, due to its PoW consensus algorithm.
However, there are some future developments that will address this issue, such as:
- ETH-2.0 – By the end of 2022, the Ethereum network will entirely switch to a PoS system. This should reduce the power requirements for transactions by almost 99%.
- Smart contract competitors – Energy-efficient smart contract platforms such as the Binance Smart Chain (BSC) and Tezos (XTZ) are gaining traction in the ecosystem.
- Environment-friendly NFTs – Important actors in the space such as Enjin are working toward sustainable NFTs to improve the future of digital currency.
To conclude, NFTs are just getting started, and networks are being upgraded to accommodate for faster, cheaper, and increasingly energy-efficient transfers.
The emergence of a metaverse
The NFT craze in the art industry is just the beginning of a disruption of a wide array of sectors such as gaming, real estate, insurance, and many more. Their widened usage will lead to the emergence of the Metaverse.
In a nutshell, the Metaverse is a collective virtual space where all the users can participate in an open crypto economy.
Blockchain technology is setting the foundation for such an environment, because of the trust and durability it creates for virtual worlds. Thanks to decentralization, the virtual world becomes perpetual which incentivizes people to allocate more time to it and participate in its growth.
Furthermore, NFTs provide tokeconomics where cryptocurrencies can be used widely within the virtual world, providing real value for those involved in the system. They give access to a standardized platform for proving ownership, without the need of third parties, making it easily verifiable.
While this Metaverse is currently limited to gaming products like The Sandbox, we expect that it will grow to encompass a large number of sectors. And as interoperability between blockchains gets more streamlined, online education, banking, and healthcare could entirely take place in a blockchain Metaverse.
The future of digital currency – what to watch out for
By now, you should be aware of some important large-scale evolutions going forward in the future of digital currency. With that said, you should keep the following events in mind, as they are bound to have a direct impact on the crypto markets going forward.
The crypto supply shock
Previously, we touched upon the decreasing availability of Bitcoin due to a set maximum supply. The same is true for the majority of cryptocurrencies on the market.
We are already seeing a minor Bitcoin supply shock in the current bull run where the rapid increase in demand is outpacing the new coins put in circulation. Furthermore, an increasing number of investors prefer to hold on to their Bitcoin for its store of value properties, instead of selling it on exchanges.
As the market runs out of Bitcoin, and institutional investors increasingly buying in, the value of the entire market could literally explode in the following years. Users might be forced to invest in other coins, which would drive the demand for other blockchains further up.
The next Bitcoin supercycle
An additional bullish indicator for the future of digital currency is the Bitcoin supercycle. The Bitcoin market enters an extremely bullish momentum every 4 years, closely following each reward halving, as seen in the picture below.
Dan Held, the head of growth at crypto exchange Kraken, defines these market periods as Bitcoin Supercycles. Considering the price follows this predictable pattern, there’s a good probability that we see Bitcoin reach prices above $200.000 during the current cycle.
What’s even more astonishing is that following this reasoning, a single Bitcoin could surpass $1 million at the peak of the next expected bull run in 2025.
This proposition closely coincides with PlanB’s Stock-to-Flow model, which has given quite an accurate price prediction for Bitcoin in the past.
Check out Held’s latest interview for Cointelegraph below.
To summarize, in this article we went over some of the most important factors that will influence the future of digital currency, including:
- Their role as a store of value.
- Their mass adoption for daily usage as a method of payment.
- Their usage for proof of ownership through NFTs.
- The emergence of a metaverse.
Furthermore, we explored crucial events that you should be looking out for including:
- The Bitcoin supply shock
- The next Bitcoin supercycles
To conclude, we can say that cryptocurrencies are quickly gaining mainstream attention, from both retail and institutional investors. The general public is finally learning about their true value. The importance of decentralization Satoshi Nakamoto was trying to convey back in 2009 is becoming common knowledge, to the benefit of everyone involved.
Moreover, use cases for crypto are still emerging daily. Parallelly, their best characteristics, such as their role as a store of value and as a digital currency are continuously improved. All of which leads to increased adoption, which is crucial for the future of digital currency.
And while we don’t think cryptocurrencies will overtake the existing monetary system, they will certainly improve through sheer coexistence.