In 2023 we are faced with questions about cryptocurrencies that have long been unanswered. Probably since they were born but since things were going well it was not important to answer them. At the same time, last year its price had fallen by two percent due to inflation. Giants Of crypto investments: Terra platform and, by the end of the year, FTX.
Perhaps the most relevant question is: do cryptocurrencies really have a future?
Other important questions would be: Is this a reformable model? Is it better to wait for central banks to launch their own cryptocurrencies before investing in them? What lessons does his performance in the markets teach investors?
short and simple explanation
Cryptocurrencies are virtual currencies or assets. In other words, they do not have a physical backing, nor are they dependent or backed by any country or institution, but can be used as a medium of exchange or as an investment.
they are based on blockchain technology or blockchainWhich is defined as: “a digital and distributed transaction ledger with identical copies on multiple computer systems controlled by different entities.”
This information is distributed across a large number of computer systems controlled by various entities. Blind The chain of blocks, since with current technology, it is practically impossible to change the same information in all computer systems in which it is distributed.
After these clarifications, we are now going to answer our questions.
Does cryptocurrency have a future?
The guarantee of a traditional currency, for example the euro or the dollar, lies in the credibility given by the country or institution behind it.
The only problem with cryptocurrencies (bitcoin, ethereum and long etcetera) is that Guarantee It is your trust in them. They have no support other than the expectations of supply and demand. Behind it is only a complex computer system, which is based on technology blockchain, Nothing else. There is no other guarantee.
For example, if one loses the access code of their bank, they can go to their branch and recover it by providing their documents. But if what you lose are the access keys to your bitcoins, you’ve lost money: there’s nowhere to claim.
According to a recent study, 20% of bitcoins belong to users who have lost their passwords.
So, as a transactional system, can it work? yes, as long as technology blockchain Does not break or stop working properly.
However, as an investment, you must be fully aware that this is a speculative product whose value is not backed by any asset, country or entity. Most cryptocurrencies have nothing behind it except what the market wants it to be worth. And today it is largely volatile and speculative.
If the price of a cryptocurrency goes up, it is because there is more trust in that cryptocurrency and it is believed that it will be used more in the future. So, as a financial product, does cryptocurrency have a future? without backup RealPeople will stop accepting them to such an extent that they will stop seeing their utility.
cryptocurrencies are for transactions peer to peerOperating among equals in which financial institutions do not have the upper hand and are difficult to control.
This characteristic makes them very attractive for transactions in which anonymity is desired (whether due to criminal acts or for other reasons).
An Improveable Model?
To the question of whether cryptocurrency is a model that can be improved, the answer is no. They fulfill the functions of a currency (investment, savings, exchange), have the efficiency of digital and, in addition, maintain the anonymity of the user, like cash.
Better Supported Cryptocurrency?
With regard to supported cryptocurrencies, the truth is that we already have currencies from central banks. What can a cryptocurrency controlled by a central bank be used for?
A cryptocurrency controlled by a central bank would serve the same purpose as a traditional currency, which is already controlled by that central bank.
Instead, official cryptocurrencies will be of great use to economic authorities because of their extreme efficiency and control over transactions. Plus, if everything went through them, they could put an end to the underground economy.
But the user will completely lose anonymity. Central banks will know where you have spent every single penny of your money. As is the case with the digital yuan that the Chinese central bank is implementing.
And what lessons are left for investors?
When there is no value behind it, it is very likely that the bubble will burst in the end. This has already happened with tickets and will happen with them being exorbitantly overpriced.
We have seen the rise and fall of cryptocurrencies, but sooner or later they will reach their plateau of profitability and find their place in an increasingly complex and digital system.
If you invest in any cryptocurrency today, do so with a full knowledge of the facts, knowing that there is nothing behind it but pure speculation and speculation.
This advice also works for those who are investing speculatively metaverse arena,
Jorge Pellegrin Borondo, Professor of Marketing and Market Research, La Rioja University
This article was originally published on The Conversation. read the original.
