Prices have fallen sharply in the crypto markets recently. Bitcoin and other cryptocurrencies have experienced similar and even larger drops previously, but investors and non-investors will rightfully want to know why it happened this time.
Many people know about cryptocurrency, but few know how it works, what it can do, or why its prices fluctuate. We can understand why this question reverberates louder than ever: over 90 percent of adults in the UK have heard of Bitcoin. Additionally, it is estimated that at least 200 million people own or have owned crypto worldwide.
The future of cryptocurrency is bright. Many educational institutions are adding cryptocurrency to their curricula because of its underlying blockchain technology. In light of the recent drop in market values and the current uncertainty, it's more important to bridge the gap between cryptocurrency's name recognition and its understanding.
Crypto is Complex and Always Will be for Most Investors
Crypto and blockchain are far more confusing compared to other advanced technologies, such as artificial intelligence and quantum computing. The impact of Bitcoin was not anticipated by many people with advanced computer science knowledge. It was largely obscure in 2008 when Bitcoin was first introduced to a group of cryptologists by its creator, Satoshi Nakamoto, and was only used by small online communities that appreciated the possibility of decentralization.
Decentralization means that Bitcoin is not owned by any one person or institution. As a result of blockchain technology, transactions are recorded and made visible to all in a database ledger. The ledger is maintained by a network of computers that work individually and collectively to confirm and secure transactions on the ledger. Sounds complicated, right? It is important to remember that a blockchain enables people to trust crypto transactions.
Crypto, Though Valuable, is a Revolutionary and Disruptive Technology
Bitcoin today is valued at around $30,500 (£24,500), an enormous rise since its infancy. While the price fluctuates, it is still higher than two years ago. Growing recognition of the role blockchains can play in the future of the internet has contributed to the value of crypto.
Through the use of cryptocurrency, users can confidently and safely interact and transact with each other in a wide range of areas. Secured by blockchains, in which everyone can see real-time transactions in a broad range of areas, enabling faster and cheaper payment transactions across borders, and underpinning digital ownership of assets.
Scarcity is the second factor that drives cryptocurrency's value. The price of cryptocurrencies increases as demand increases. For example, the total number of Bitcoins is limited to 21 million.
Cryptocurrencies are Volatile by Nature
Prices for cryptocurrencies continue to fluctuate dramatically. Why is this happening? Lately, traditional markets have become more volatile, like the stock market. In addition to the fastest price rise in decades, the Ukraine conflict and concerns about the global economy contributed to price volatility.
For some investors, cryptocurrency is similar to a tech stock. Similarly, cryptocurrency has suffered in recent months. The recent drop in prices has more to do with global markets than anything relating to crypto fundamentals (the underlying technology or economic design), with one notable exception: Terra Luna.
In the debate over whether we are in another crypto winter due to Terra Luna's collapse, it would be more useful to focus on the long-term potential of crypto rather than the swings of the day. Crypto ecosystems are strengthened by stress tests like the past few days.
Crypto is Here to Stay
Technologists and speculators are not the only ones who see crypto's role growing. Cryptocurrency regulators, such as Jerome Powell of the Federal Reserve and Gary Gensler of the Securities and Exchange Commission, have joined the chorus.
The use of cryptocurrencies is steadily increasing in our daily lives. Another sovereign nation, the Central African Republic, has adopted Bitcoin as an official legal tender. It has been announced that the mayors of New York and Miami will take their salaries in Bitcoin. Recently, Goldman Sachs became the first Wall Street investment bank to offer a Bitcoin-backed loan. The likelihood of your current financial services provider offering you the option to purchase Bitcoin is fairly high soon.
As the internet grows and more of our lives become digital, the rise of crypto is part of a much larger trend. Cryptocurrency prices are not immune to global volatility, and there is a legitimate debate about whether blockchain technology is the best solution for all the advertised use cases. However, it is unrealistic to expect crypto to travel in an orderly fashion since it is a disruptive technology.