With governments starting to back blockchain technology, and Central Bank Digital Currencies (CBDC) on the horizon, cryptocurrencies are here to stay.
Since the invention of Bitcoin in 2008, cryptocurrencies have come a long way. Backed by innovative technology, blockchain, the concept of cryptocurrency as a digital asset has encapsulated various arenas. The digital currency is not merely looked at as speculation. Instead, in 2020 they are perceived as investment vehicles, security tokens representing a tangible asset, a mode of payment, and much more.
The significance and role of cryptocurrency have expanded substantially. From mere speculation to an investment instrument, the cryptocurrency industry is thriving. Moreover, its use cases are not restricted to financial transactions. Instead, digital currencies with different applications in various industries have already transpired.
Today, we are going to take a look at what the future of cryptocurrency looks like, taking into consideration advancements in the sector.
- Investment vehicles
Over the last three years, prominent organizations have started offering services pertaining to the cryptocurrency industry. With that, institutional investors, hedge fund managers, and investment managers have started developing an interest in cryptocurrencies. Investors are now keen to include digital assets in their diversified investment portfolios.
A recent survey, consisting of 400 institutional investors and hedge fund managers, revealed that nearly 72% were keen to make investments in digital assets. The industry has always held the interest of retail investors. Now, with the influx of institutional investors, cryptocurrencies are much more likely to be treated as investment tools alongside stocks and gold.
- Easing regulations
Over the last two years, a number of governments have changed their stance towards cryptocurrencies and digital assets. Germany’s Financial Authority have classified Bitcoin and other cryptocurrencies as official custodians. At the same time, in 2020, the Supreme Court of India lifted the ban pertaining to trading with digital currencies.
Governments have now started drawing regulations to provide a legally-compliant environment for trading and investments in cryptocurrencies. In the near future, we are likely to see countries drawing regulations pertaining to the use, trade, and storage of digital currencies.
- Causing disruptions in banking and finance
While cryptocurrencies use-cases have started developing in numerous industries, the financial ecosystem is first of the many that are likely to undergo massive disruption. From cross border transfers to tokenizing financial instruments, cryptocurrencies have applications in a number of verticals in the banking and finance industry.
More than 20 countries have already started exploring the concept of Central Bank Digital Currencies (CBDCs). As per this research, the costs of financial transactions using cryptocurrencies are significantly lower than transaction costs in the traditional economy. According to other research, 90% of the US and European banks have already started exploring blockchain and cryptocurrencies.
- Exchange hubs
As all cryptocurrency trading and investments are gaining rapid interest, it would create an imminent need for supportive infrastructure. The current methods of digital cryptocurrency trading are not sustainable for the longer-term owing to discrepancies in methods and processes. In the near future, we are likely to see the emergence of exchange hubs catering to providing multiple solutions under one platform.
For example, exchange hubs can be a hybrid liquidity aggregator that offer a one-stop-solution for traders to access the best prices in the cryptocurrency market with minimal hassles. Additionally, such an exchange hub enables storing, managing, and buying or selling digital assets from a single portal instead of navigating between multiple interfaces.
- Mainstream adoption
Apart from being treated as an investment tool, cryptocurrencies will likely take a more prominent role in day-to-day activities. The concept of digital currencies is growing increasingly familiar. Furthermore, cryptocurrencies offer a lot of perks when used as a mode of payment transfer. Merchants, retailers, and organizations have started acknowledging this fact.
A recent survey revealed that 36% of small-medium businesses accept Bitcoin as a payment method in the US. This number is likely to grow in the upcoming years as cryptocurrencies get into the mainstream. In 2020, major retailers including Microsoft, Wikipedia, Burger King, Starbucks are a few that are accepting Bitcoin.
- Innovation with Crypto Tokens
In the upcoming years, cryptocurrency tokens are likely to be integrated with other technologies and innovations. This includes AI, smart contracts, and the Internet of Things (IoT). Tokens will be used to provide supportive infrastructure, build smart tools, and infuse automation by integrating innovative technologies.
For instance, smart locks (a type of IoT device) can only be unlocked if an owner deposits cryptocurrency tokens into a specified wallet. A smart contract with encoded rules can further automate this system.
- Decentralized Applications
Decentralized applications (dApps) leveraging the blockchain infrastructure can be used in various industries including healthcare, supply chain, gaming, logistics, food and agriculture, and so on.
Cryptocurrency tokens will serve as the fuel to the decentralized application network. These tokens serve as a function of utility for accessing products and services of dApps. Since dApps are rapidly being developed for multiple industries, subsequently there will be many more digital currencies in the next few years.
What to expect next?
The potential of digital currencies empowered by blockchain technology is unprecedented. Looking at the current advancements and projects that are underway in the crypto and blockchain ecosystem, we are going to witness disruption in multiple industries. Even the current statistics, analyses and figures reveal that blockchain will be one of the greatest innovations of this century.
Owing to its advantages and subsequent developments in the cryptocurrency arena, the perception of this entire industry has transformed. The question has changed from ‘Is there a future of cryptocurrency’ to ‘What is the scale of implications of cryptocurrencies on our future’.