There are plenty of indicators that suggest cryptocurrency has a bright future ahead of it. PayPal gives users the ability to buy digital currency and use it to make payments. Both Mastercard and Visa credit cards are on board as well. And it doesn't hurt that Elon Musk, the "TechnoKing" himself, continually pushes digital assets like Bitcoin (BTC).
But what does the future of cryptocurrency look like? Before we answer that question, let's take a look at the opportunities and challenges that await the blockchain industry.
There is no shortage of opportunities available within the cryptocurrency market. These markets show plenty of potential and possibilities. Here are a few use cases in which crypto could see significant growth in the future.
Blockchain technology is both a threat and an opportunity to the current financial system. Whether the current financial system remains relevant will depend on how willing it is to take advantage of the possibilities that exist within the crypto space.
The reality is that it has been a long time since the banking industry experienced a real threat, so the first ones to jump on the wagon will be ahead of the game. It's also why traditional banks that refuse to acknowledge the possibilities in the blockchain world are already falling behind.
One of the key features of blockchain is its ability to reduce errors while improving transparency. All transactions that take place on a blockchain ecosystem are immutable and viewable in real-time. As a result, it can help improve regulatory monitoring and reporting performed by central banks.
Additionally, cryptocurrency can aid in executing financial contracts. By using smart contracts, banks can create agreements that automatically execute when specific parameters are met. These are especially helpful for complex financial transactions. Due to the nature of blockchain and smart contracts, unchangeable rules are established, and the transactions are settled automatically.
Arguably the biggest opportunity that exists for the future of cryptocurrency is user adoption. It's estimated that only 14% of people in the United States use or hold cryptocurrency in any capacity. That means even popular crypto assets like Bitcoin, Ethereum, and USDT are used by fewer than one in six people.
As a result, there is a massive amount of potential for user adoption in the future for the crypto market. While exchanges like Coinbase are leading the way in this effort, there is still plenty of room for growth. Unfortunately, the market is still viewed as unstable due to its volatility. However, as more investors join the party, the less likely it is we'll see the massive ups and downs the crypto market is known for.
The market will (hopefully) see significant growth with further influence by key opinion leaders like Elon Musk (CEO of Tesla) and Mark Cuban (owner of the Dallas Mavericks) continue to create ways to integrate cryptocurrency into our society.
Payments and transactions go hand in hand with user adoption. As more people buy cryptocurrencies, the more they'll want to be able to make payments and purchase goods and services with them. Fiat currency still rules, but when it comes to the speed with which international transactions occur, you'd be hard-pressed to find a better method than crypto.
However, payments impact more than just retailers and service providers. A key area often overlooked is the ability to perform transactions from one person to another. With fiat, the only way to perform this type of transaction without using a bank is with cash, and even then, the bank is aware of how much you withdrew from your account.
With crypto, you can perform these types of touchless transactions without the need for a third-party intermediary. As the DeFi market continues to gain traction, so too does the ability to perform quick and easy transactions from one person to another. Instead of relying on a financial institution like PayPal, the funds will go straight from one wallet to another.
Even with all the possibilities and potential crypto offers, there are still plenty of challenges the industry will face as well. Here are just a few of the roadblocks that might stand in the way of cryptocurrency growth and adoption.
This is a significant hurdle for crypto to overcome, especially in the U.S. Banks and government regulators want to control the digital asset class through laws and rules requiring user verification. This somewhat defeats the purpose of BTC — the world's largest cryptocurrency — and other digital assets.
Along those same lines, countries like India and China are looking at banning cryptocurrencies entirely. This type of uncertainty with governments worldwide is sure to harm any future growth within the crypto marketplace.
A second challenge that faces the crypto industry is the problem of security. Most crypto investors regularly use online exchanges like Binance and Coinbase. Unfortunately, these exchanges are vulnerable to potential hacks and malware attacks.
One glaring example of this was the Mt. Gox hack. This $460 million disaster showed the flaws that exist in crypto exchanges. However, we're quickly approaching a decade since the Mt. Gox event, and online trading platforms have shown a willingness to upgrade their systems significantly. They're not perfect, but they're much better than they used to be.
Additionally, the composable nature of smart contracts on Ethereum’s network make them vulnerable to economic attacks that can’t be detected through regular code audits. That means a seemingly perfect piece of code that has been thoroughly reviewed may still be open and susceptible to malicious invaders.
The barriers to entry into the crypto world could be a post all of its own, but we'll only touch on a few for the purposes of this article.
For starters, user education is lacking. Some exchanges and platforms do their best to teach newcomers the basics, but understanding blockchain technology and buying, selling, or trading crypto are difficult concepts to grasp. It's not always as simple as buying and selling stocks.
To make things worse, few projects make customer support a priority. You can buy, sell, and stake as much as you want, but the moment you run into trouble, you're on your own. This is especially challenging if the platform you're using isn't intuitive or user-friendly.
Lastly, crypto can be a very volatile market. The valuation and market cap of a digital asset can change drastically from day to day. If investors aren't careful, they could wind up losing a lot of money.
Despite these challenges, the future of cryptocurrency is exciting and full of potential. Many areas have shown signs of significant growth, even in the last year. One specific area that has taken off recently is the world of NFTs, or non-fungible tokens.
An NFT is an item that is unique and can't be easily replaced. For instance, one BTC is fungible. You could exchange it for another Bitcoin if you wanted. On the other hand, a unique trading card is non-fungible in that it can't be easily replaced. With NFTs, you can own a digital copy of art, music, and other collectibles. Users purchase these NFTs with crypto and can then trade them for other non-fungible assets.
Additionally, large corporations are starting to get into the blockchain game. Facebook, for example, has long been rumored to be developing its own cryptocurrency, Libra. Additionally, CEOs of tech companies are helping drive crypto adoption. For example, Twitter’s CEO, Jack Dorsey, has gone on record stating that he owns cryptocurrency. It doesn’t hurt that the platform is actively driving inclusion of cryptocurrencies.
Last but not least on our list is decentralized finance, or DeFi. This term is an overarching vision of how to perform transactions without the need for banks and other centralized intermediaries. DeFi applications aim to offer all the services found with traditional financial institutions, but they make these services global, transparent, and permissionless.
Even though the sector is still in its nascent stages, there is plenty of excitement about the potential of DeFi. Many in the industry believe that DeFi may outperform the existing traditional financial system within the next decade.
Even in the middle of a pandemic, cryptocurrency has found a way to grow and gain user adoption. While many remain tethered to the current system already in place, others are ready to embrace the opportunities that exist through blockchain technologies. That doesn't mean there won't be growing pains along the way, but as you can see, there are plenty of industries in which blockchain can make a significant impact.
One of the most intriguing arguments for the future of cryptocurrency is its DeFi market. There are many platforms already making inroads within the sector. One popular option, Unagii, offers both DeFi yield farming and staking, so no matter where your interests lie, we’re sure to have something for you. It's an exciting time for the crypto market, so be sure to set aside some time and check it out!