Can Cryptocurrency Market Still Thrive In This Fast Paced Era?
Rarely in the history of capital markets has there been a disruption as meaningful as the reverberations Bitcoin, and the other cryptocurrencies that followed in a new cryptocurrency market sent through the world of global finance. Investors have approached the new phenomena with responses ranging from unqualified endorsement to barely stifled laughter.
Since 2008, extreme perspectives on both ends of the spectrum have been whittled away as investors, banks, and national governments have wrapped their heads around two indisputable realities. Namely, the cryptocurrency market is here to stay, and regulation of its market will require a Herculean effort.
Traders who do not move to incorporate cryptocurrency assets into their broader investment strategy are playing a losing game of chicken with the future of finance in the United States and in the world. Cryptocurrency was born of an inadequacy in the traditional banking system as it has matured it has highlighted many additional deficiencies. This relationship with traditional banking institutions has forced this new market to adopt values from the banks and vice versa.
This increasing interplay is cementing this new currency to the global economy in a manner that stabilizes cryptocurrency and provides investors in more traditional financial arenas with a unique opportunity to diversify their assets and build long-term wealth. Cryptocurrency offers its users' unrivaled privacy, global reach, and uniquely modern investment opportunities; cryptocurrency occupies a critical space in the future of the global economy.
What Is Cryptocurrency?
Cryptocurrency is a revolutionary form of currency in that it has no physical equivalent; the asset is entirely digital. It differs from national currencies, widely referred to as fiat currency in reference to a cryptocurrency market, in a few ways. As we mentioned, there is no actual bill or coin that has any cryptocurrency value. Because it is not beholden to a central bank or government, it has no formal governing body to regulate many aspects of circulation or supply. Like many fiat currencies, it has no intrinsic value; it is based solely on collective consumer confidence.
Satoshi Nakamoto created Bitcoin, the first and most important cryptocurrency, in 2008 while attempting to develop a workable solution to the digital cash problems banks were having at the time. For digital cash to function properly, each financial institution needed to have a complete and accurate record of every transaction to ensure money is not being spent twice, otherwise, digital cash transactions between different financial institutions would have been impossible.
The creation of such a network proved unrealistic. Instead, Satoshi Nakamoto solved this problem by creating a de-centralized record of transactions, and Bitcoin was born.
To date, the most alluring feature of Satoshi Nakamoto's innovation is the peer-to-peer network that makes cryptocurrency and hence its entire market feasible. In the peer-to-peer network, every peer has access to the transaction history of every Bitcoin so there can never be a discrepancy in balance sheets, the kind of discrepancies that made digital cash unrealistic for banks.
Despite the complete record kept on the network, peers never compromise their own privacy by engaging in a transaction because each Bitcoin and each Bitcoin address is identified only with an encrypted code which can not be identified and hence cannot be regulated by a financial institution.
How Does It Work?
Consumers have flocked to investment opportunities in the cryptocurrency market because the user experience is smooth, secure, and anonymous. Peers conduct transactions quickly all over the globe while retaining privacy. The system of encryption and validation keeps cryptocurrency assets safe from digital attacks and forgery in storage and in transactions on a cryptocurrency market. Peers can use their accumulated cryptocurrency to trade for other cryptocurrencies, convert into fiat currency, or invest in other assets.
Encryption and De-Centralization
Cryptocurrencies offer a degree of privacy unmatched by fiat currencies by virtue of the de-centralized, unregulated network on which they operate and the pseudonymous 30-digit keys used to address the peers to which cryptocurrencies are sent. These factors enable untraceable transactions nearly everywhere in the world. Cryptocurrencies also circumnavigate obstacles to international trade because transactions are not regulated by any institution that could impose restrictions regarding where in the world funds can be sent.
A cryptocurrency transaction begins when a peer on the network sends a transaction request to the network. The request is then broadcast to the network and put into motion. The transaction must be validated by a miner, a process we will address shortly hereafter. Once the transaction has been verified by the miner, the transaction is encoded in a blockchain which constitutes a portion of the complete history of each Bitcoin which ensures unperturbed consensus among peers regarding balances.
The mining process is delegated by the peer-to-peer networks used in a cryptocurrency market, so no institution as the authority to delegate this task to anyone in particular. As such, anyone who is able to perform the mining function can do so. The role of the miner is specifically tailored to preclude forgery on the network.
Miners must work to find a cryptographic function to confirm they have converted a transaction request into an immutable portion of the blockchain. Miners are then paid with a predetermined amount of the cryptocurrency with which they are working. Without this process, hackers could easily flood the network with forged transactions, and the system would break down.
Once a peer has invested in a cryptocurrency, he or she can take the currency to a cryptocurrency market where it can be traded for other cryptocurrencies, exchanged for a fiat currency, or invested in other ways depending on the market. Different cryptocurrency markets cater to different classes of investors. For instance, the Gemini cryptocurrency market serves primarily American traders whose fiat currency of choice is typically United States Dollars.
Initially, it was difficult to find a cryptocurrency market on which to buy cryptocurrency with a fiat currency, but this roadblock has been largely circumnavigated by the proliferation of markets that operate around the world.
Will It Last?
In an assessment of its market and its long-term viability, most major investors and market indicators encourage a skeptical sense of optimism. Engagement with regulatory bodies affiliated with national and international governments has been the most onerous challenge for the cryptocurrency market, but in recent months a greater integration of cryptocurrency with traditional assets has promised to bring cryptocurrencies into the mainstream in the near future.
Anticipated Rise in Value
In the last year or two, Bitcoin, the flagship cryptocurrency, has fluctuated dramatically in price. In late 2017, Bitcoin hit an all-time high price per coin at just under $20,000; since then, the price has slid to around $6,500. This price is expected to stabilize in the coming months based on increased regulation in the cryptocurrency market as Bitcoin, and other cryptocurrencies move to stabilize their prices.
As cryptocurrency drifts toward the mainstream, American companies are quickly developing products and services intended to satiate the appetite for digital assets and exposure to the cryptocurrency market as a part of a comprehensive investment portfolio.
Perspectives on the value of regulation in the cryptocurrency market, or lack thereof, created a rift in the cryptocurrency market; a rift that is slowly abating. Cryptocurrencies grew in popularity among investors interested in keeping all of their assets off the grid and invisible to regulators. The more moderate wing of cryptocurrency investors cites the potential for increased stability and greater long-term growth available only in concert with regulatory agencies.
It appears the moderate wing of the market has won out as some cryptocurrency markets, notably Coinbase and Gemini, have corresponded with the IRS regarding user data. This move, while controversial among investors, is considered a promising, stabilizing factor for the market by financial analysts as a whole.
Integration and Interaction with Fiat Currencies
A company called Circle, funded by Goldman Sachs, has stormed onto the scene in the United States with claims that all currency will eventually be cryptocurrency and plans for a cryptocurrency tied to the United States Dollar. It would be the first currency of its kind. Circle is not alone. Many major banks and financial institutions in the United States are developing investment products that give investors "synthetic exposure" to the cryptocurrency market and marketplaces in which customers can trade in various cryptocurrencies.
This will pose a regulatory challenge in the short-term, but eventually, investors can expect cryptocurrency to be a common, even mundane element of a diversified investment portfolio.
Cryptocurrency offers a unique user experience in which privacy, a breadth of the market, and long-term potential for growth are unfettered by current market trends. Cryptocurrency is essentially digital cash that is not beholden to any regulatory body or national government. Instead, transactions are recorded in a decentralized, secure, peer-to-peer network. This enables quick transactions across the globe with minimal oversight and red tape.
The system is structurally resistant to fraud by the mining process which requires paid labor for the confirmation of each transaction. Moving forward, cryptocurrencies are integrating with traditional financial institutions and mechanisms. Investors and traders, whether vested in the cryptocurrency market or not, must understand the impact of cryptocurrency to trade successfully in a changing market.
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