Although some people say that cryptocurrency represents the true future of the world economy, critics argue that no matter how significant cryptocurrency could be, it will always be confined to being an internet phenomenon. The real-time exchange markets are still plagued by many issues that prevent cryptocurrencies from truly competing with the traditional ones.
On top of that, the recent coronavirus pandemic showed us how volatile these currencies are when a global event hits the market. Although Bitcoin has now slowly recovered since its downfall in March, stock exchanges saw a 26 percent fall in value over a single day — a disaster that is largely unacceptable for most investors.
Can the blockchain world eventually become a true competitor of the traditional financial markets? Can it be a solution to avoid the centralization danger, by focusing on the agility of smart app-based technologies such as Qtum and cryptocurrency ATMs?
Cryptocurrency ATMs and Banking Barriers
Financial inclusion is a fundamental aspect of our world that determines the quality of our lives. Families and companies need to have quick and reliable access to affordable financial services such as credit and insurance to face unexpected emergencies, absorb financial shocks, expand business, and invest in health, education and housing.
Globally, 69 percent of adults have an account with a financial institution, but this percentage drops significantly in the developing world, meaning that more than one-third of that population lack any form of financial access. Digital payments clearly are on the rise, especially since a large number of unbanked people possess a cell phone that can be used to keep a digital wallet.
Due to widespread lockdowns that forced consumers to purchase merchandise without leaving their houses, digital payments became even more frequent during the 2020 COVID-19 crisis. Cryptocurrencies are, therefore, a potentially powerful democratizing force that can increase inclusion and allow fast transactions without any intermediary involved, even in the most impoverished regions of the world. (Read: 5 Industries That Will Be Using Blockchain Sooner Rather Than Later.)
Bitcoin ATMs may represent the answer needed to solve the problem of banking barriers. In a nutshell, crypto ATMs work by allowing a user to anonymously exchange fiat currencies (that is, currency with a value set by a central authority) for cryptocurrencies through a cell phone. Instead of withdrawing fiat from a credit card or a bank account, the user only needs a cell phone app to scan a QR code to send and receive any digital currency which can be then exchanged into fiat and withdrawn through any of the crypto ATMs.
And since we live in a futuristic world that really looks like Futurama a little bit more every day, in the near future it will be possible to withdraw fiat anywhere at any time, since the ATM will, literally, fly to us. A new San Francisco-based startup known as MANNA Robotics has recently developed a drone delivery system that provides instant cryptocurrency ATM service by flying directly to users who have requested their services.
The Proof-of-Stake (PoS) System and Avoiding the “Tragedy of the Commons”
One of the reasons why critics of the digital currencies claim their future is doomed is the intrinsically limited availability. Traditional cryptocurrencies such as bitcoin and Ethereum use a proof-of-work (PoW) system to function. Originally invented as a safety measure to deter malicious uses of computing power such as denial of service attacks and spam on a network, this algorithm was later implemented to prevent people from “cheating” at cryptocurrency mining operations.
Since the supply of computational power is limited, fraudulent miners are discouraged from attacking the network because that would cost them much more in resources than any potential profit.
However, today the PoW model requires an increasingly higher energy consumption, which turns into expensive transaction costs. Eventually, if a method is not devised to address this problem, the entire system will lead to a potential “tragedy of the commons,” a future point where too many people will compete for the same resources (in this case the cryptocoins).
When this happens, the number of miners will be significantly reduced since the block reward for mining will be minimal. As a consequence, whenever a miner controls 51 percent of the computational power of the network, he could start creating fraudulent blocks of transactions for himself. (Read: Hacking Cryptocurrencies.)
One solution that has been devised to address this issue is the proof-of-stake (PoS) system. Following this approach, an individual’s mining power is directly linked to the amount of coins he or she owns. A PoS system replaces the computational power and energy required by PoW with just stake. Following the above example, the miner who has a 51 percent stake in a cryptocurrency will never attack the network because it would be against his own interests since he’s the majority shareholder.
So it may be reasonably argued that PoS-based cryptocurrencies represent the future of blockchain, yet very few of them have managed to efficiently implement this system so far.
Among these, the one that seems to hold the biggest potential is Qtum, a smart contract platform which is focused on mobile development software. Originally meant to be a bridge between Ethereum and bitcoin, Qtum merged Bitcoin Core infrastructure with the Ethereum Virtual Machine (EVM). It acts as a hybrid value transfer protocol that inherits the reliability of bitcoin’s safe blockchain, but also has the flexibility to support smart contracts and dapps.
Qtum also looks to solve one of the biggest inherent limits of Ethereum: the need for the sequence to begin from inside of the blockchain itself. Qtum will allow external triggers to be used from outside the blockchain to initiate contracts through “master contracts,” giving it the adaptability to be much more compliant with real-world situations. If Qtum is able to hold its promises and its marketing campaign is successful, it really looks like it could potentially become a cryptocurrency that can compete with traditional ones.
Other PoS-based cryptos such as Dash or Neo are also available, but no one else seems to really offer anything that compares to Qtum in terms of becoming a substitute of traditional currencies.
That’s, once again, if we suppose that cryptocurrencies can really substitute traditional currencies. But at least, the widespread implementation of PoS cryptos can dispel the widespread fear of a resource crisis.
The Big Firms Enter the Market — Is the Decentralization Dream Dead Already?
It was only a matter of time before the largest players of the financial world would set their sights on digital currencies. A survey from Thomson Reuters that included over 400 partners found that almost 70 percent of the biggest corporate giants such as Eikon, Goldman Sachs and REDI already planned to start trading cryptocurrencies by the end of 2018.
They want to establish a foothold in what represents a small yet extremely important portion of the modern trading market. And even if their investments may seem limited, when a 100-year-old bank decides to accommodate cryptocurrencies, the decision has a potent symbolic meaning.
This first series of warning signals show how cryptocurrencies could be derailed by the world's central banks. If the largest financial institutions start issuing their own cryptos, the whole idea of “decentralized” may become nothing but another dreamy bubble, doomed to burst in due time. If the “empire strikes back,” the decentralization dream will be dead in no time. Especially since it’s clear that their intent is to monopolize the system to slowly kill it rather than to develop it, since they still do not trust it at all.
To put things in perspective, in May 2020, Goldman Sachs explicitly recommended against investing in cryptocurrencies foretelling their lack of usefulness in case of global war. “You need computers to work and be able to access the internet” he explained, “so cryptocurrencies have not got that war hedge element you get with gold.”
Today, only a limited number of mining pools possess the computational power and hash rate needed to mine the bitcoins, to the point that these few organizations control almost half the entire market. Networks are handing their power to the miners, who are centralizing the crypto market in the same way central banks strangulated the traditional one.
On the other hand, if the highly controversial bitcoin exchange-traded fund (ETF) gets approved by the United States Securities and Exchange Commission (SEC), people could finally get to buy into bitcoin without having to deal with dangerous and unstable real-time exchange markets. Most people are, in fact, kept out of the blockchain market because they have to struggle with exchanges where lack of security and high trading fees are the biggest concerns.
That’s not counting how much these markets are plagued by the cumbersome regulations imposed by nations that still fail to move with the agility needed by the digital world. On top of that, the largest crypto exchanges do not support fiat currency, forcing traders to face additional downtime and expenses as they must first buy BTC/ETH from a “gateway” exchange.
But, again, would the approval of the ETF, whose very idea was able to let the price of the Bitcoin skyrocket in July, really be beneficial for the future of cryptocurrencies? Or would it just drive the digital coins into the centralizing hands of a few world-controlling entities? (To learn more about the dark side of cryptocurrency, Read: Hacking Activities Increase Along with Cryptocurrency Pricing.)
At the moment, it is very hard to make any predictions about the long-term future of cryptos. Maybe the collective dream of a world free from personal debt was a bit far-fetched, but they still hold much promise.
Some of their inherent limits may be overcome, but even if some of the new solutions proposed seem solid, the future of digital coins also depends on how the traditional financial world will react, and how the world’s governments will handle them.
And while we can talk about technology all day long here, this is definitely not the right place to talk about politics!