Cryptocurrencies: The Good, The Bad, and The Future
Now a revolutionary worldwide phenomenon, cryptocurrencies have come a long way from being a niche opportunity for tech mavericks. These digital assets have progressed to become a household name in the world of finance. It’s rare to find a soul who hasn’t at least heard of Bitcoin, the first and most valuable cryptocurrency. Due to their decentralised nature, cryptocurrencies are independent of authorities or governments, a fact which has drawn countless investors.
A Brief History
- 2009: Satoshi Nakamoto mines the Genesis Block, the year after releasing a paper on the subject. This thus establishes Bitcoin and cryptocurrency mining. Despite not being the first attempt at a digital currency, Bitcoin is widely regarded to be the first cryptocurrency.
- 2010: The first transaction using Bitcoin occurs.
- 2014: The price of a Bitcoin exceeds $1000.
- 2017: Bitcoin witnessed a massive boom, with the price of a single coin exceeding $20,000. Market growth subsequently slows.
Boundless Potential
While cryptocurrencies remain a controversial topic to this day, it is undeniable that investing in these assets presents countless opportunities. The lack of association with a central bank mitigates the threat of destabilisation from unstable economies. Not only do these traits allow investors to diversify their portfolios, but the capped supply of certain cryptocurrencies, such as Bitcoin, makes them inflation-resistant in a manner that mirrors gold. Additionally, cryptocurrencies may yield extremely high returns. For instance, the value of Bitcoin has increased from $0.09 in 2010 to $76,999 at the end of 2024.
Bitcoin prices have varied considerably since the currency’s conception in 2009, with a 855,543,444.44% increase over 14 years. (Investopedia / Alice Morgan)
Moreover, a new era ushers in new opportunities, and the widespread adoption of these assets has resulted in the opening of many doors. Advancements in the technology are numerous and unarguable, and can thus be applied to countless domains. In the wake of the expansion of the world of cryptocurrencies, institutions such as decentralised financial systems (DeFi) have risen to prominence. DeFi eliminates the need for banks or intermediaries, especially in areas with limited such resources, to obtain services like loans and other investments. Moreover, the use of blockchain can be expanded beyond the finance sector. These technological developments would allow for safer databases across various applications, notably online electoral voting, medical inventories, and personal data safeguarding.
The Dark Side of Cryptocurrencies
Nonetheless, cryptocurrencies are not without significant challenges. Cryptocurrencies do not only witness surges, but also prominent crashes. This volatility makes any cryptocurrency a high-risk investment with the potential to cause massive losses. As shown in the previous graph, Bitcoin witnessed a $19,748 crash between November and December 2021. Moreover, the regulatory framework surrounding this subject is still evolving and quite often uncertain, with regulations varying across countries.
Beyond posing a risk to the investor, cryptocurrencies can have larger-scale challenges. Most notably, cryptocurrencies have been proven to be remarkably taxing on the environment. Proof of Work (PoW) cryptocurrencies require egregious amounts of energy for mining. The energy sources used to power this process are often heavily reliant on fossil fuels, thus leading to detrimental environmental outcomes. Bitcoin alone is estimated to use 435.61 kWh per transaction. Ethereum, another widely used cryptocurrency, surpasses Bitcoin with a transactional energy usage around 5.52 GWh.
What do Professionals think?
We had the opportunity to interview Hisham, who works at Microsoft as an Azure Sales Leader. He gave us insights on the current opportunities that cryptocurrency has to offer and the biggest challenges that this technology will have to face.
After learning about blockchain technology in 2017, he realized its true potential. He worked on and developed a fully fledged crypto mining farm and made it a valid revenue source. Hisham explained that by understanding the “distributed ledger” aspect of Bitcoin, a sort of notebook where transactions are recorded on multiple computers, you can apply it in endless cases, not just currency: property rights, decentralised finance, tokenization… However, he told us that there are also many challenges. There is always a tradeoff between the three dimensions of cryptocurrencies: security, scalability, and decentralization. There is also a societal challenge as the total adoption of cryptocurrencies would “displace the middleman” and hurt the banking market.
On the subject of the environment, Hisham proposed another perspective. He acknowledged the massive energy uses of cryptocurrencies, notably PoW in Bitcoin, but suggested that it is a necessary use of this energy as it will be the foundation of commerce for all human beings.
The Takeaway
With cryptocurrencies skyrocketing in popularity recently, it’s easy to jump into this world without considering all its facets. In reality, cryptocurrencies, like most other opportunities, are highly nuanced with numerous benefits but also risks and downsides.
References:
- https://www.forbes.com/digital-assets/crypto-prices/?sh=5a612fce2478
- https://www.investopedia.com/tech/were-there-cryptocurrencies-bitcoin/
- https://kriptomat.io/cryptocurrencies/history-of-cryptocurrency/
- https://www.northcrypto.com/learn/blog/the-risks-and-opportunities-of-crypto-investing-a-beginners-guide#:~:text=Investing%20in%20cryptocurrencies%20can%20offer,uncertainty%20and%20data%20security%20issues.
- https://www.investopedia.com/articles/forex/121815/bitcoins-price-history.asp
- https://www.forbes.com/councils/forbestechcouncil/2021/06/30/16-tech-experts-share-blockchains-potential-outside-the-finance-industry/
https://www.investopedia.com/tech/whats-environmental-impact-cryptocurrency/
By: Berine Wehbeh, Bruno Beujekian
