Maybe we should call this insight “The Future is Cryptocurrencies,” and maybe we should add “And the Future is Here!” It may not surprise you that we’re high on a blockchain technology like cryptocurrency, but you may be skeptical about whether we’re living in the age of cryptocurrency yet.
That’s okay. We were living in the age of the internet well before most of us realized that, too. The point is not that everyone is using cryptocurrency; it’s that cryptocurrencies are going mainstream. Banks, insurance companies, and even countries are beginning to buy into cryptocurrency. They’ve seen the cryptocurrency future, too, and now they’re helping build it.
What’s Cryptocurrency, Again?
The money you keep in the bank that’s backed by the federal government is called fiat currency. As a centralized currency, it relies upon a complex system of corporate and governmental institutions to remain more or less stable. There are certain limits on how you use fiat currency, it’s expensive to borrow or to send overseas, and it’s subject to inflation.
Cryptocurrency is a digital currency that is decentralized. Well-known examples include Bitcoin, Ethereum, and Litecoin. Most cryptocurrencies rely on blockchain technology because of its security, reliability, and speed. With cryptocurrency, or crypto, for short, you have a lot more flexibility with your money. You cannot currently pay your taxes with it, but on the other hand, you can use it all around the world and it is impossible to counterfeit it.
Why Cryptocurrency Weirds People Out
You can learn more about cryptocurrency all over the web, of course. Investment sites like Nerdwallet and Investopedia provide lots of information, but you may notice some reticence about investing in it. This is because the logic of cryptocurrency flies in the face of traditional investing and banking.
Where fiat currency assumes there must be a high degree of regulation and institutional control over money, cryptocurrency relies on peer-to-peer networks (the blockchain) to verify and secure transactions. It uses open-source technologies and the ledgers are open to the public.
There are other understandable reasons people are cautious or even very down on cryptocurrency.
From an investment point of view, cryptocurrencies are still pretty young, and we have to admit that even the largest crypto, Bitcoin, has seen some dramatic fluctuations in its value in the last few years. Then there’s the fact that there’s no physical or institutional guarantor of cryptos; they just seem kind of “out there.”
Finally, the technology behind it is still new and sounds complicated. People are right to be wary about putting their fiat money into digital currency when they don’t understand what they’re doing.
Why We’re Excited About the Future of Cryptocurrency
Our best advice is still to just try it and see. Put a little money in and have a look around.
But here’s why the digital currency future is already here. Cryptocurrency started like punk rock. In the early days, a bunch of digital anarchists, political outsiders, thrill-loving speculators, and folks up to no good saw it as a way to opt out, if partially, from the global economy.
That was more than a decade ago. Cryptos have grown up, and they’re signing to major labels. That is, the large players are getting into the game. Paypal is offering crypto, now. S&P Dow Jones is planning to launch a crypto index in 2021. The venerable Massachusetts Mutual Life Insurance company recently bought $100 million worth of Bitcoin. There’s even a bitcoin exchange that has received a bank charter in Wyoming.
One can understand why crypto geek Tibor Fischer has been arguing all around the internet, “Crypto has won.”
What This Future Will Look Like
As more corporate, bank, and insurance money flows into cryptocurrencies, you can expect more average people to get curious and to start exploring the crypto world—which will in turn increase its value.
Expert investors will also increasingly get involved, and they will bring their wisdom and investing habits to bear on innovations within the crypto sector. This is good news, because it’s impossible for crypto to go mainstream without solving some of its problems with volatility (or the perception thereof).
We’ve already seen how crypto’s blockchain networks respond to crises. After the “crypto winter” of 2017 when the bitcoin bubble burst, alternative forms of crypto began to organically emerge. Some of these are not “truly” decentralized, but they offered more conservative investors easier entrance to the world of crypto.
The future of cryptocurrency will therefore look much more diverse than it is today. More products, more exchanges, the rise of insurance, etc. will mean more users, more data—and more confidence.
Ethereum 2.0 and the Rise of DeFi
One big move to watch is Ethereum 2.0. This is a massive effort to increase efficiency, speed, and scalability of the Ethereum network. Their current “layer 2” or L2 solution created ways for users to take their ETH (Ethereum’s cryptocurrency) “off-chain” to their own networks. Ethereum 2.0 will allow investors more flexible, secure options within the same network.
Ethereum is betting this will convince investors that they are an even better home for the growing industry of decentralized finance, or DeFi, than they’ve been to the present.
In addition to flexibility and speed, DeFi promises greater fairness in and access to financial products because it operates independently of the usual human, institutional, and regulatory gatekeepers. It is more resilient against bad actors or corruption and more transparent than the traditional closed-door, board meeting system.
Think of it as a part-automated, part-democratized way for everyday people to move their money around compared to putting it in a bank and letting the bank earn them a fraction of a percent on it. Here’s a great explainer video on it.
Given the many advantages of DeFi, it’s likely that traditional financial institutions will explore ways to integrate it with their current systems just like they’re looking at crypto in general.
Obviously, we’re pretty excited about all this. After all, we at Dom & Tom were early adopters of bitcoin and blockchain technologies. If you’ve got a cryptocurrency or blockchain idea, we’d love to work with you. Let’s talk.