What is in store for the future of cryptocurrency, and how is it predicted to shape day-to-day transactions for businesses and individuals?
Bitcoin, Ethereum, ZCash, Dash, Ripple, LiteCoin. By now you’ve heard of one of these decentralised, peer-to-peer networks for independent financial transactions, known as cryptocurrencies. On 18 June, the European Union’s Blockchain Observatory will host its first ‘Ask Me Anything’ session on cryptocurrency, signaling the peaked interest in the technology.
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Future of cryptocurrency: The rise of Bitcoin (and altcoins)
The initial price of Bitcoin was set at less than $0.01 in 2010. It peaked on 16 December 2017 at $19,343.04 but has since fallen to $6,877.86 as of 11 June this year.
Despite this, cryptocurrency remains an incredibly large economy, and at its peak, the bitcoin model inspired a wave of new cryptocurrencies, or ‘altcoins’. Recently, Real Madrid FC footballer James Rodriguez launched his own cryptocurrency, aptly named the JR10 Token.
The market cap for Bitcoin stands at $117.54m. Its closest rival, Ethereum, enjoys a considerable market cap of $53.87m. See the latest data for the largest 13 cryptocurrencies from CoinMarketCap below:
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By GlobalData
However, digital currency exchange Luno CEO and founder Marcus Swanepoel shares his opinion on the future of cryptocurrency and Bitcoin in particular.
He tells Verdict: “For a start, most altcoins are not intended to have the same use as Bitcoin. Ethereum, for example, serves a different purpose and wasn’t designed to be a currency (although it has come to be used for that.) Many altcoins represent a new technology or platform. As the name suggests, they are alternatives, not replacements.
“Luno believes that it’s highly likely that one digital currency – most likely Bitcoin – will continue to play a dominant role, because of its properties as a store of value and the network effects it has shown so far.”
Future of cryptocurrency: The cost of crypto
There are a number of challenges to the future of cryptocurrency. These include current regulatory barriers, cybersecurity, and energy consumption, as well as the difficulty in converting cryptocurrency into spendable money.
Cryptocurrency exchange CoinMetro CEO Kevin Murcko tells Verdict: “There’s both technical and regulatory barriers that slow – and in some cases, prevent – the fiat to crypto and crypto to fiat conversion process.
“However, this state of affairs is changing rapidly; nations are already in the process of developing sensible legislation, exchanges are beginning to secure regulatory approval, and even Wall Street is beginning to facilitate cryptocurrency trading for clients. Before long, we’ll see those barriers completely crumble.”
Another challenge is the huge consumption of energy that is required to power cryptocurrency ‘mining’, as well as its susceptibility to cyber attacks.
Barry Shteiman, vice-president of research and innovation at Exabeam, tells Verdict: “At a time when cryptocurrency fever is taking off globally, it’s easy to forget the hundreds of thousands of crypto-specialised computers and servers ‘mining’ these currencies into circulation. Cryptocurrency uses as much CO2 per year as one million transatlantic flights. Many believe we should take it seriously as a potential climate threat. In November of 2017, the power consumed by the entire bitcoin network was claimed to be higher than that of the Republic of Ireland.
“Less obvious is the hidden threat to businesses, which is something business leaders should bear in mind for the future of this technology. Malicious actors –looking to offset this massive energy consumption – are now targeting corporate networks, often seeking to hijack an entire connected infrastructure to develop a distributed crypto-mining operation. In fact, we see a range of hacking toolkits adding mining modules today to maximise on their malicious business efforts.”
Cyxtera director of cybersecurity and threat analytics Aaron McKee adds: “Cryptocurrency mining relies on the computational power of the system used to create the currency and process the transactions. Many are realising that the computational power, which requires a huge investment, is at a premium with the result that on-premise and cloud-based resources are being targeted by hackers, who will look for the weakest link to install and propagate their mining software to steal computational power to mine for coins, and they don’t care who they hurt in the process.
“Each unauthorised crypto-mining exploit can result in a loss of productivity, network bandwidth degradation and even have a negative impact on operational costs. Another, often overlooked, aspect of crypto-mining is the enormous impact to infrastructure resources they consume. Power, cooling, and hardware over-utilisation costs must also be factored into damage calculations.”
Future of cryptocurrency: Will cryptocurrency replace national currency?
Despite these negative aspects, there is still great potential for cryptocurrencies to flourish, and murmurs are already being heard of its potential to replace national currencies one day. This is the opinion of Google’s top-rated futurist Thomas Frey, who predicted that, by 2030, cryptocurrency will have a significant impact as a medium of exchange.
He said: “Cryptocurrencies are going to displace roughly 25% of national currencies by 2030. They’re just much more efficient, the way they run.”
Institute for Global Futures CEO and chairman Dr James Canton said that the surge in popularity of cryptocurrencies represents “the legitimisation of a new asset class emerging alongside the traditional global economy”.
“I’d say you can expect an exponential increase of new investment vehicles to come from crypto-finance,” he added.
Others were more cautious regarding the future of cryptocurrency.
Murko tells Verdict: “Bitcoin might not replace all of the existing systems, but it adds a new layer of value – similar to how we still have regular postal mail and fixed-line telephones even though we have Facebook, Skype, and Gmail. The impact has already proven to be significant.
“Other currencies will probably play a different, more focused role and people may use Bitcoin to store or switch between these other currencies. Something like a global reserve digital currency, not unlike the US dollar in the current financial system.”
Some altcoin developers are also aiming to use cryptocurrency to incentivise positive choices by users, especially regarding the environment.
Energi Mine CEO and co-founder Omar Rahim said: “There is very little attention paid to the concept of using cryptocurrencies in an environmentally positive way. Instead of thinking about personal gain, we should instead focus the narrative on how they can be used for the good of society. A cryptocurrency-based tokenised reward system would allow for rewarding people for positive behaviour in a way that could create long-term positive change.
“Energi Mine is currently using this idea to incentivise people to make environmentally friendly choices, giving people a tangible financial reward in the form of Energi Tokens (ETK) for positive changes in behaviour. In this way, cryptocurrencies can have a positive environmental impact rather than a wholly destructive one.”
Sequant Capital CEO George Zarya tells Verdict: “Cryptocurrency is likely to become more institutionalised as the years progress. Despite launching onto the investment scene with much fanfare, it is important to remember that it is still young and needs to mature in the market. A more mature market will lead to increased investment from professional investors such as hedge funds, further legitimising cryptocurrency in the financial sector. This will naturally lead to tighter regulation and controls to protect investments and legitimise businesses that work in the sector.
“As time goes on, cryptocurrencies such as Bitcoin will be viewed less as a means of payment and more as an asset class. And introduction of stable coins will popularise cryptocurrencies as a payment method. In short, the future will bring increased controls and reliability to the asset, allowing individuals and groups to invest and bank with security and ease.”
