A cryptocurrency is a digital currency created and managed through the use of sophisticated encryption techniques known as cryptography. Cryptocurrency came to birth from an academic concept to a reality with the founding of Bitcoin. Bitcoin was birthed in 2009.
Although Bitcoin suddenly became popular and had a massive growing in the subsequent years till now. It attracted significant attention from investors and media in April 2013 when it hit a record $ 266 per month. Bitcoin got to a 10-fold increase in the previous two months. Bitcoin had a market value of more than $ 2 billion at its peak, but a 50% decline shortly after sparked furious debate about the future of cryptocurrencies in general and Bitcoin in particular. Will these alternative currencies eventually go conventional currencies? Or are cryptocurrencies a passing fad that will burn out soon? The answer lies with Bitcoin.
So What Challenges Does Bitcoin Face?
Some economic analysts predict that a major change in crypto will be imminent when institutional money hits the market. In addition, there is the possibility that crypto will be floated on the Nasdaq, adding to the credibility of blockchain and its use as an alternative to conventional currency. Some predict that all crypto needs is a verified exchange traded fund (ETF) . An ETF would certainly make it easier for people to invest in Bitcoin, but there still needs to be demand to invest in crypto, which may not be automatically generated with a fund.
Some of the limitations that cryptocurrencies currently face – such as the fact that a person’s digital fortune can be erased by a computer crash, or a virtual safe can be looted by a hacker – can be overcome over time by technological advancements. What will be more difficult to overcome is the fundamental paradox that cryptocurrencies spoil – the more popular they become, the more regulation and government oversight they are likely to attract, eroding the fundamental premise for their existence.
While the number of merchants accepting cryptocurrencies has steadily increased, they are still very much in the minority. In order to use cryptocurrencies more widely, they must first gain wide acceptance among consumers. Their relative complexity compared to conventional currencies is likely to deter most people, other than being technologically adept.
What other challenges?
A cryptocurrency that wants to be part of the mainstream financial system may have to meet widely varying criteria. It should be mathematically complex (to prevent fraud and hacker attacks), but easy to understand for the consumer; decentralized but with sufficient consumer guarantees and protection; and maintain user anonymity without being a conduit for tax evasion, money laundering and other harmful activities. Since these are formidable criteria to meet, is it possible that in a few years’ time the most popular cryptocurrency will have attributes that fall between highly regulated fiat currencies and current cryptocurrencies? While that possibility may seem remote, there is little doubt that Bitcoin’s success (or lack thereof) in dealing with the challenges it faces could determine the fate of other cryptocurrencies in the years to come as the leading cryptocurrency in this field.