The industry that once focused solely on Bitcoin is rapidly evolving; developers are attempting to create scalable and secure decentralized blockchain products.
Back To The Beginning
When the Satoshi white paper first proposed bitcoin in 2008, it presented a unique and freeing concept: a peer-to-peer, decentralized payment system that anyone, everywhere could use. It worked without the use of intermediaries or an exchange rate, and it produced a single worldwide currency that can be used for any form of transaction.
See also: Is it possible to fight inflation with cryptocurrencies?
Then there was the issue of greed. Over time, the use case that bitcoin was designed to fulfill has faded a little. Rather than focusing on its original purpose — as a payment mechanism — bitcoin became known as an investment instrument, a store of value, and digital gold. (Top Blockchain expert, Merav Ozair, Ph.D., a Fintech Professor at Rutgers Business School in New Jersey.)
Some of bitcoin’s early adopters were evangelists who truly intended to make a difference in the world and develop a new form of global financial system, spurred on by the 2008 financial crisis. The bulk, on the other hand, were speculators looking for a quick profit. Bitcoin began trading on cryptocurrency exchanges as a financial tool, with substantial price volatility caused by speculators. This shows how much it has moved away from its original economic use case — as a payment method — and has evolved into a speculative financial instrument.
Bitcoin Acceptability As a Payment Method
The acceptability of Bitcoin as a payment method has been debated over time, analysts have concluded that Bitcoin must be scalable or extensible enough to sustain numerous seamless transactions if it is to become widely adopted as a payment method.
However, the blockchain technology that underpins bitcoin is still in its infancy, and engineers are constantly on the lookout for methods that might create a decentralized blockchain that is both secure and scalable. Meanwhile, speculators have the upper hand as long as a scalable solution is not created and bitcoin is unable to deliver on its first use case. When speculators set the price, volatility rises, making bitcoin’s adoption as a payment mechanism even more difficult.
See also: Which Cryptocurrency Will Be the next Biggest Thing?
The Rise Of Stablecoins
Bitcoin’s extreme volatility has hampered its capacity to be used as a payment method, leading to the rise of stablecoins. The argument is that a volatile payment cannot be relied upon for business transactions. Businesses require predictability and consistency. Bitcoin, in its current condition, is unable to provide that stability, necessitating the use of stablecoins.
Greed got in the way once more. Although several stablecoins have been launched, only a few are currently in use. Stablecoins are mostly utilized on crypto exchanges as a fiat currency substitute or in decentralized finance (DeFi) applications to get attractive returns on investments that are much better than traditional saving techniques.
However, unlike bitcoin, they are not used as a means of payment for everyday retail transactions. The declaration in 2019 by Meta (previously Facebook) of its intention to establish a stablecoin sparked a debate among regulators about the status of stablecoins, as well as a sense of urgency among states to safeguard their sovereignty and ramp up attempts to develop a central bank digital currency (CBDC).
See also: Why is Bitcoin an excellent investment, but is Ethereum an even better buy?
The Rise of CBDCs
Despite the fact that all countries are looking into and discussing the usage of cryptocurrencies, stablecoins, and CBDCs, their approaches are highly diverse. China is developing its own CBDC and declaring all other cryptocurrencies (including stablecoins) illegal, whilst Japan recognizes bitcoin and other cryptocurrencies as legal property and accepts them as payment methods.
Other countries are unsure, but they are calling for cryptocurrency and stablecoin regulations, such as the European Commission’s proposed Markets in Crypto Assets (MiCA) regulation or the United States’ President’s Working Group on Financial Markets (PWG) report outlining the regulatory landscape for stablecoins.
See also: Three Cryptocurrencies that could outperform Ethereum in 2022.
In a November address, Federal Reserve Governor Christopher Waller stated that “the United States payment system is undergoing a technology-driven change.” He stated, “payments innovation, and the competition it provides, is good for consumers,” notwithstanding his doubts about the need for a CBDC. His remarks backed up the efforts of technology businesses to work with financial institutions to provide stablecoin payment alternatives.
“In a perfect world,” Waller observed, “there would be one payment system and one payment instrument that everyone uses.” He disputed such a scenario of a one-payment system, arguing that “in our imperfect society, this would give monopoly power over the payment system” — alluding to a centralized payment system or provider. Obviously, he was not referring to Bitcoin or any decentralized payment system.
Remember that the goal of Bitcoin was to establish a “perfect world” in which no single company has monopoly power over the payment system. It was created to be a payment system “managed by the people, for the people.” People forgot where it all began when the bitcoin cryptocurrency became a financial tool, trading on crypto exchanges.
Regulators and policymakers appear to agree on the benefits of distributed ledger technology (DLT) for financial institutions and consumers around the world. However, they disagree over the utility and applicability of DLT. The use of cryptocurrencies, stablecoins and CBDCs will almost certainly coincide, with their application and importance varying among countries and regions.
The Success of CBDCs
Cryptocurrencies will most likely be supported in Asia-Pacific. In Asia-Pacific, Mastercard released crypto payment cards with the goal of making crypto transactions more frictionless. A CBDC is likely to be preferred in Europe. The United Kingdom and other eurozone countries are working nonstop on CBDC remedies.
DLT and blockchain technology will continue to evolve and become the “rails” of all financial and economic systems and applications, with the United States likely choosing stablecoins or an equivalent over a digital dollar. We’ll definitely see a dichotomy of utility tokens and payment instruments, such as stablecoins or CBDCs, to make it easier for daily consumers to connect with these applications.
More specifically, applications such as DeFi and non-fungible tokens (NFT) will be launched on decentralized blockchains, with users interacting seamlessly with these applications using stablecoins, CBDCs, or credit/debit cards — either crypto or fiat currency — as they do with their smartphone applications. These platforms will be crucial in the evolution of the metaverse cosmos.
See also: Comparing the Ethereum (ERC Network) To Binance Smart Chain (BSC Network).
The Industry That Once Focused Solely on Bitcoin Is Rapidly Evolving. Developers are attempting to create scalable and secure decentralized blockchain products. Bitcoin began trading on cryptocurrency exchanges as a financial tool, with substantial price volatility caused by speculators. This shows how much it has evolved from its original economic use case — as a payment method — into a speculative financial instrument. Bitcoin’s extreme volatility has hampered its capacity to be used as a payment method.
Stablecoins are mostly utilized on crypto exchanges as a fiat currency substitute or in decentralized finance applications. China is developing its own CBDC and declaring all other cryptocurrencies illegal, whilst Japan recognizes bitcoin and other cryptocurrencies as legal property. The use of cryptocurrencies, stablecoins and CBDCs will almost certainly coincide. We’ll definitely see a dichotomy of utility tokens and payment instruments. The U.S. is likely choosing stablecoins or an equivalent over a digital dollar. Europe is working nonstop on CBDC remedies.
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The Future of Cryptocurrency: The industry that used to be all about Bitcoin is quickly changing was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
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