Cryptocurrency is a new form of digital money that transfers value on a permissionless blockchain. It is a technological innovation that has many potential applications.
However, crypto’s monetary system is characterized by inherent shortcomings in stability, efficiency, accountability and integrity that cannot be addressed solely by regulation. Moreover, crypto’s tendency toward fragmentation makes it difficult to harness network effects.
1. Decentralisation
Decentralisation is an important principle for the future of cryptocurrency. It involves transferring decision-making and control from centralized authorities to a network of distributed participants.
It also allows for independent decisions and ensures better protection against corruption, a key concern for crypto investors.
Moreover, decentralisation can be used to ensure that data is accessible even if a central server goes down. Instead, data will be stored across multiple nodes and verified by a number of devices.
The potential for a decentralised web – or DWeb – to address privacy concerns is particularly exciting because it could be a way for consumers to control their personal information. It also could help thwart the rise of companies like Facebook and Google that collect and sell user data for profit.
2. Smart contracts
Smart contracts are computer programs that execute pre-programmed business logic that responds to a trigger or event. They can be programmed to perform different transactions or tasks and are stored on a blockchain (a distributed ledger technology that records transactions in code).
In contrast, traditional contract agreements often use a template of terms outlined in legal documents. That document is handed to a programmer, who then creates code that breaks down the agreement into logic if-then statements.
While these code-based agreements are generally more efficient, they also introduce additional risks that are not present in text-based contracts. These include the possibility that smart contract codes contain bugs or coding errors. They could also be exploited by hackers, smugglers and terrorists.
3. Privacy
To proponents, cryptocurrencies are a democratizing force that will change the way we exchange value. However, to critics, they are wildly unregulated and are empowering criminal groups, terrorist organizations and rogue states.
Cryptocurrency mining also requires a lot of electricity, which is bad for the environment. Regulators are trying to develop rules for the emerging industry, but it could take years.
Privacy is an important consideration for crypto investors and is likely to play a large role in the future of cryptocurrency. As a result, many social media platforms such as Telegram and Signal have begun incorporating crypto features into their products. Additionally, Twitter has indicated that it will integrate a state money license to let its users pay for goods and services with digital assets such as Bitcoin. This could be a huge boost to the crypto market.
4. Convenience
Cryptocurrencies are often described as a means of payment that is “secure, fast and easy.” This is certainly true in many ways. However, it is also important to consider that some of these currencies can be wildly volatile in value.
This can make it difficult for everyday consumers to plan spending in the case of extreme price fluctuations. It is important to consider this when determining the future of cryptocurrency.
To overcome this, it is essential for businesses to understand their audience and provide the necessary information that they will need. This can include offering easy-to-use platforms and educational content that will help intenders get into crypto.
5. Scalability
Cryptocurrency is a digital currency that does not have a physical form, but rather exists in a blockchain on a server. Its transactions are highly encrypted to keep your personal information safe.
Despite its widespread adoption, cryptocurrency is often criticized for its slow transaction speed. As such, scalability is a crucial factor for ensuring its long-term success.
Scalability refers to the ability of a system to handle an increasing number of transactions and ensure that they are all processed in a timely manner. This can be done through various methods, including scaling the blockchain size, removing signature data and using sharding technology.
These solutions will help to increase the network’s processing capacity and reduce transaction latency. They also improve the overall scalability of the blockchain by dividing it into shards that are small, manageable parts that run parallel to each other.
6. Adaptability
Cryptocurrency is a digital asset that aims to make it possible to transfer value online without the need for a central authority or middleman. It does this by running on a distributed public ledger called the blockchain.
In addition to transferring value, cryptocurrencies have also become increasingly used as stores of value and as a form of governance. They can even be used to pay taxes, making them a popular choice for businesses and governments.
However, despite these benefits, they cannot fulfil the high-level goals of a digital monetary system (see glossary). They suffer from inherent shortcomings in stability, efficiency, accountability and integrity that can only be partially addressed by regulation and oversight.
7. Security
Cryptocurrencies are a relatively new form of online payment that operates in a decentralized manner, and can be transferred without the use of traditional banks. They’re designed to be anonymous, and transactions are highly encrypted to protect users’ personal information.
There is growing concern that cryptocurrencies may have broader implications for security and financial stability. For example, they could be used for criminal activities and may also present financial risks when a crisis strikes.
This means governments need to mitigate potential shocks to the crypto system through regulation and supervision. In addition, they must also develop technological capabilities to monitor and analyse the growth in market capitalisations, economic activity and international flows (Graph 2).
8. Trust
One of the biggest promises that cryptocurrencies and their technology have made to consumers is that they are “trustless.”
But this notion isn’t entirely true. Cryptocurrencies are a system that encrypts transactions and cuts out middlemen, but people still need to trust it for a transaction to go through safely.
So how does a consumer create trust in this new technology?
Cryptocurrency’s decentralized nature and lack of centralized authority make it easier for people to rely on their own resources to verify ownership and conduct transactions. But it also leaves users vulnerable to hacker attacks, so it’s important to keep your crypto assets safe.
9. Interoperability
Cryptocurrency interoperability is the ability to use and interact with multiple blockchains. This allows for new applications to be created that would not be possible in a centralized system.
It also improves the ability of a blockchain to provide decentralized services and reduces network congestion. It can also enable cross-chain trading and social connecting.
There are many different protocols aiming to achieve interoperability. Some of them include Cosmos, Polkadot and Harmony.
The future of cross-chain interoperability holds immense potential to reshape the crypto landscape. It will help unlock a unified, interconnected blockchain universe and foster DeFi innovation.
10. Transparency
One of the most important societal benefits of the blockchain is transparency. The decentralized nature of the technology means that anyone can check on-chain whether transactions have been executed correctly or not.
However, this can be an expensive and time-consuming process for users, who may need a trusted third party to confirm transactions on their behalf. Fraudsters can also develop innovative ways to evade discerning eyes.
This problem has been compounded by a series of exchange debacles, including QuadrigaCX’s bankruptcy in 2022 and Bitfinex’s fake volume report in late 2022. These examples illustrate the need for better accounting via a combination of reputable auditors and on-chain transparency.
