The Future of Cryptocurrency
If you’re new to the wild west of cryptocurrency, then it’s likely you see the phenomenon in a few different ways: It’s either a provocative new way to unburden the global population from the tyranny of government regulation and banks, the latest “get rich quick” scheme or it’s the next gold standard. What many newcomers don’t realize is that cryptocurrency is a truly disruptive technology that could change the face of nearly every industry, from finance to retail to government. Regardless of how it’s viewed, the cryptocurrency market has already shown to have a volatile and profitable future ahead of it.
To understand where cryptocurrency is heading, it’s important to understand its origins. In 2009, today’s face of cryptocurrency, Bitcoin, was created by an individual named Satoshi Nakamoto -- though he has since been theorized to be a group of hackers instead of one actual person. Bitcoin’s appeal was rooted in the decentralized nature of its currency, therefore not beholden to any government entity. The coin was produced and initially distributed through “miners”- individuals who use their computing power to solve complex mathematical puzzles to complete each “block” on the blockchain and verify coin transactions. The miner who solves each block puzzle first is awarded new coin and a portion of each transaction transcribed on the block. This process is at the core of Bitcoin because no single entity is ever in control of the circulation of the currency and is intended to prevent people from double spending.
Generally speaking, the more valuable the cryptocoin, the greater the return for mining transaction on its blockchain. But there’s no free lunch. With greater return there’s also greater investment needed. Therefore, coins with higher return on mining also demand longer (more complicated) numeric puzzles and as a direct result, more computing power to win the race to solve it. This is how Bitcoin transitioned from being economically viable to mine with first a CPU, then a GPU, and now ASICs, which are chips specifically built to mine. Today, Bitcoin has a $250B market cap and has paved the way for many other coins including Ether, Litecoin, Dash and more each day. While Bitcoin is built on a “proof-of-work” algorithm (i.e. all miners are responsible for verifying transactions), as are many of the most popular cryptocoins in circulation today like Ether and Dash, there are other types as well. Ripple, for example, now the coin with the second highest market cap only behind Bitcoin, is both a centralized and non-mineable coin.
In order to validate and authenticate cryptocurrency, there is an entire ecosystem built around the circulation and verification process. First things first: prior to any investment in cryptocurrency, you must have a “wallet” to receive, store and send coins. A hardware wallet is a physical electronic device that offers a unique “secret key” that acts as an individual's identity when making transactions. One of the most popular hardware wallets is Trezor, known for its high level of security. There are completely electronic wallets available, called Hot Wallets, which also have secret keys and are easier to use but less secure than their hardware counterparts.
As coins appreciate or depreciate in value, websites like CoinMarketCap, the Blockfolio app and CoinTracker.network act as the defacto financial news sites of cryptocurrency to keep up-to-date on the latest prices. For those who own cryptocurrency and wish to buy or exchange it with other coin holders of various tokens, websites like CoinBase exist to fill this need. When these exchanges happen, it is the miners in a proof-of-work blockchain who verify these transactions and transcribe them to the block.
The next logical question is what do you actually buy with cryptocurrency? Other than Bitcoin, there isn’t much to buy directly. But if you own Bitcoin there are a lot of options. Sites like gyft.com, allow the purchasing of gift cards for various retailers. Bitcoin owners can purchase plane tickets and reservations from Expedia and CheapAir, and essentially anything from Overstock.com, the large Amazon competitor that accepts Bitcoin. As other cryptocurrencies hit the mainstream, expect more retailers and service providers to accept currency.
Future of cryptocurrency
What will be next for cryptocurrency? While cryptocurrency remains largely speculative, there are many viable prognoses for the longevity of such coins around the globe. One such version considers that there are plenty of countries that don’t have a strong fiat currency and might use cryptocurrency as a replacement. Right now, we are beginning to see many new products, companies, and even filmmakers using Initial Coin Offerings (ICOs) to fund projects in place of traditional IPOs to engage investors who are perhaps crypto-rich and cash-poor, and potentially to circumvent onerous regulatory requirements. This practice will only become more commonplace in the future.
Despite the hope, it is only a matter of time before there are more regulations imposed on cryptocurrency, especially in the United States. Currently, the SEC has restrictions on equity coins and not utility coins, which are coins that serve a function or purpose other than appreciating in value. However, it increasingly looks like the SEC is trying to shrink the scope of what they consider a utility coin. On the surface, regulations are counterintuitive to the vision of cryptocurrency, but it could be positive for the future of the market. For one, it would effectively eliminate fraudulent ICOs that litter the marketplace and dampen public perception. It could also help reduce volatility that makes “mainstreet” purchasing of cryptocurrencies challenging. Major gaming platform Steam recently rescinded Bitcoin as a viable payment method because Bitcoin’s fluctuating price would change mid-transaction.
Mining companies such as ours, HashChain Technology Inc. have also taken strides to legitimize the market on our own without government entities forcing our hands. HashChain Technology is publicly traded on the TSX Venture Exchange (TSXV:KASH), further validating the merger between stocks and cryptocurrency. Publicly-traded mining companies provide a unique value because we indirectly give investors access to a wide array of cryptocurrencies they don’t have the hardware, or perhaps core competency, to profitably do themselves. Mining the highest marketcap coins as an individual is simply not economically viable anymore. Truly profitable Bitcoin mining requires a mining pool of many ASIC chips in data centers with prime mining conditions (low cost of electricity, high speed internet, cool climate) to improve ROI for each coin mined. The stock price of cryptocurrency mining companies can increase as the cryptocurrencies mined increase the company’s valuation. Additionally, HashChain is able to mine many coins at once, allocating computing power to whichever may be profitable at the moment.
Specifics of the future of cryptocurrency remain uncertain, but we expect it to continue to flourish and instigate changes across a variety of industries.