Future of Cryptocurrency
Cryptocurrency is still a relatively new idea, and not even the world’s best experts know exactly how the market will develop in the future. It’s fairly certain that cryptocurrencies are here to stay, although cryptocurrencies themselves may come and go.
The pandemic led to a huge increase in making payments using card or mobile phones rather than cash, and this appears to be a permanent move. As people become more and more accustomed to paying even very small amounts with their cards, making the next step into using cryptocurrency doesn’t seem that much of a leap.
Cryptocurrencies are also becoming more sophisticated about their own technology as users grow, and the number of retailers and other merchants accepting cryptocurrency starts to grow too.
The main barrier to cryptocurrency is that the level of knowledge needed to get involved in the first place. Although it has got simpler over the years, you still need a basic understanding of what it’s all about to start investing in the first place. Developers are working on designs and interfaces which are pitched at the average person in the street, rather than the computer savvy tech professionals who understand the technology in full.
Spending My Cryptocurrency
The range of merchants who accept cryptocurrency is growing all of the time. Cryptocurrency has been used to pay for everything from a takeaway pizza right up to expensive residential properties. If you have lots of cash sloshing around, you can even use your Bitcoin to pay for a space flight with Virgin Galactic. If your budget doesn’t quite stretch sky-high, you can also spend cryptocurrency directly at Lush or Etsy, and buy gift cards for many other retailers using cryptocurrency too.
Part of the reason why companies have been slow to accept crypto payments is that there can be substantial set-up fees for merchants who want to accept Bitcoin or other payments. The associated fees for people who wish to pay their bills or buy goods with Bitcoin can mean it’s cost prohibitive in many cases, and so people stick to buying goods in cash or with a card. Another reason is the perceived volatility of cryptocurrency. There’s the much-cited example of a guy back in 2010 who used the very newly-launched Bitcoin to buy two takeaway pizzas. At that point, 10,000 Bitcoin was worth about £30. Since 2010 the value of Bitcoin has soared, and the same 10,000 Bitcoins today are worth around £180 million. This worry about fluctuating values can lead both customers and retailers to be increasingly reluctant.
The finance industry has been a bit keener to adopt cryptocurrency, and transactions are being made every day in this industry. People like using crypto currency to send money overseas, avoiding both transaction fees and exchange rate losses. Some large banks are also embracing the technology to pay their overseas bills.
There is also a whole “crypto” sector of the market, designed to take advantage of the new technology. You might choose to join a crypto social club, or a video game designed to run on crypto and not credit card or PayPal payments. These is still a small sector of the market, but one which is growing quickly. Cryptocurrency fans are right to point out that this is all still very new technology, and similar resistance to using the internet was experienced in the 1990s. Experts in technology – the people perhaps best-placed to predict what will happen in the future – believe that this idea of a decentralised blockchain which can’t be changed and has no one person in control could be used for all sorts of purposes, and the sector is experiencing heavy investment.
Buying and Selling Currency
Unlike picking up foreign currency for your holiday, you can’t just pop into the local bank and place an order for 100 Bitcoin. You need to access an online cryptocurrency exchange such as eToro, sign up for an account, and use their platform to trade in a wide range of cryptocurrencies.
Volatility in the market has meant that as cryptocurrencies aren’t really being used as a currency in the traditional sense of buying goods, most people who invest in Bitcoin or other currencies are doing so to try to make money – this is what is known as speculation.
Everyone Says Cryptocurrency is a Scam, or a Pyramid Scheme. Are they Right?
One of the most frequent criticism of the whole cryptocurrency market is that the entire thing is a scam, a rip-off or a pyramid scheme. Pyramid schemes – which are illegal – work by attracting new investors, whose money is used to pay the people at the top of the pyramid. Eventually the pool of new investors dries up, and the pyramid collapses with most users losing their investments.
Although cryptocurrency itself is not a scam, or a pyramid scheme, there have been pyramid schemes built around the crypto model. The biggest example is OneCoin, a cryptocurrency which also encouraged users to buy expensive “education” packages. The company is thought to have brought in $4 billion from investors, and collapsed in 2020. The woman behind the scam has been added to the FBI’s “Most Wanted” list.
This sort of story has led many people to believe that the entire cryptocurrency industry is inherently crooked, and should be avoided at all cost. When it comes down to it though, cryptocurrency is just like any other business. Investors around the world but US dollars if they trust the US economy, think the country is doing well, and believe the currency will go up in value. People make the same decisions when investing in Bitcoin and other cryptocurrencies. If enough people trust Bitcoin, use Bitcoin and believe that Bitcoin is a great idea, values will remain high.
It is all a bit of a gamble and despite what speculators or people who have invested in cryptocurrency already, there is never a sure-fire investment. Investors in cryptocurrency truly believe that it’s the way forward, and in the future, everyone will be using cryptocurrency for all purposes. Whether or nor this is the case remains to be seen.
Regulation of Cryptocurrency
World governments are still trying to get to grips with how to control and regulate this decentralised industry which has at its core a desire to operate outside government control. The United States requires cryptocurrency exchange websites to be registered, and comply with legislation around money laundering. Other large economies, such as China, have banned cryptocurrency trading completely. The UK has taken a similar approach to the Americans, and cryptocurrency trading platforms have to make sure they can identify who is using the platform and where their money is coming from, to stop money laundering and criminals using cryptocurrency instead of traditional banks.
What is also true is that there are very few rules when you compare cryptocurrency with the volumes of laws and rules which govern standard banks and financial institutions in the UK. There is no consumer protection for people holding money in cryptocurrency in the UK as there is for people investing in more traditional ways.
The “Typical” Cryptocurrency Investor
Another barrier to getting involved in cryptocurrency are the perceptions of what “type” of people get involved in trading, buying and selling. Partly because a certain degree of technical know-how is needed to understand the system and what you’re getting into, there is certainly the image that crypto investors are the computer nerds and programmers. Finding out who cryptocurrency investors are is not easy as one of the system’s main selling points is that you can remain anonymous and trade with a username rather than your real name.
One US study found that men account for around 75% of all cryptocurrency investors, with the average investor being a white man in his late 30s, earning around £100k a year. Other surveys seem to indicate that this stereotype is perhaps already out of date, as the places in the world which are the fastest growing cryptocurrency markets are in Asian countries such as India. Experts argue that the idea of having some sort of way of keeping your money away from government and official control might appear to persecuted minority groups, or those who feel that people like them have been treated unfairly by governments or financial institutions in the past.
Cryptocurrency and Global Warming
The connection between cryptocurrencies and climate change does not seem immediately apparent, but the fact that the industry is not environmentally friendly is another point which many critics often raise. It is certainly true that the vast network of computers doing the mining and verifying of the transaction process use massive amounts of energy to do so. It’s hard to work out exactly how much energy is being used by all of those computers doing all of these calculations, but some surveys have estimated that the carbon emissions caused by a large cryptocurrency like Bitcoin could be equal to the carbon footprint of Czechia.
Advocates of the system quite rightly point out that the current banking system already uses vast computing, energy and server power to run internet banking sites, bank branches and cash machines. Newer cryptocurrency blockchains are less energy-intensive than Bitcoin, bur the largest player in the market is still very energy intensive.
Investing Top Tips
If you’ve decided that you would like to dip your toes into the world of cryptocurrency, then we have some key tips about how to go about it. Before getting into the specifics, a broad ethos when investing is wise. Most experts would advise the “never put all of your eggs in one basket” approach, whether you are investing in cryptocurrency, gold, art or property. If you have funds spread across a range of different products, with different providers, this minimises your risks if any one of those providers goes into liquidation, or the price of gold, for example, is slashed overnight.
The other key piece of advice is to always try to understand fully what you are getting into. Read as much as you can about the market and how it operates, but make sure you are getting your information from a trusted, reputable source. Sites which make money by taking commission on cryptocurrency trades are not going to be an impartial source, as they will have a vested interest in getting you signed up and trading.
If you’ve decided that you do wish to invest in cryptocurrency and start trading, our key pieces of advice are:
- Choose your platform carefully. There are scam sites out there, and these are on the rise. According to the police, the average person who gets caught up in a cryptocurrency trading fraud loses over £20k. Don’t add to those statistics. Look for independent opinions on the cryptocurrency project, or the platform it is using and ask yourself basic questions about how many users it has, how long it has been in business, and what trusted investment or computing websites are saying about it. Never rush into a decision – that currency will still be around in another week or month.
- Manage Your Risk. Similar to our advice about spreading the risk across various types of investment, once you have made the decision to invest, look at a range of other factors in the currency involved. Set a value which you intend to invest, and stick to it. Don’t be tempted to add a bit more than you had intended, and never think about trading with money which you cannot afford to lose. Whatever the industry is telling you, cryptocurrency trading should be considered a high-risk venture which potentially has good profit margins, but also has potential high losses.
- Diversify. It’s the old “don’t put all your eggs in one basket” approach. Just as we’d never advise putting everything you own into cryptocurrency, we’d also advise investing in a range of currencies across the market. Spreading your risk in this way means that if one of the currencies which you have invested in suddenly loses a huge amount of value, you don’t risk losing everything. This is the same advice which is given to people building a portfolio of stocks and shared, and cryptocurrency investment should be treated in the same way.
- Take a long-term approach. It’s natural to panic if you invest in a cryptocurrency and see your investment drop in value right away. But if you believe, as many do, that cryptocurrency is the future, you will see the best returns on your investment by leaving your money invested for the long term – months or years rather than days or weeks.
- Get Automated – most professional traders set up a standing order to their trading platform to invest a set amount every month. You may choose to set the platform to buy £200 of Bitcoin on the 5th of every month, for example. Fluctuations will mean that you are getting a different amount every month, but taking this approach means you are not causing yourself endless stress by constantly watching the market and trying to predict what is going to happen next. This the way most professional traders operate, and they wouldn’t be doing it if it wasn’t paying off.
- Use Bots Carefully. A trading bot is a programme which automatically makes the trades for you, claiming to buy low and sell high. The problem is that many bots are scams and can’t do what they promise. Many trading platforms will allow you to set your own limits, so set a lower limit price at which you want to buy, and a higher level at which you want to cash out. It’s usually better to get some experience in watching the market and making manual trades before exploring how bots work.
