Cryptocurrency has become a global phenomenon in recent years, although much is still to be learned about this evolving technology. There are many concerns and worries swirling around the technology and its capacity to disrupt traditional financial systems.
Supporters of Bitcoin and other cryptocurrencies claim that these financial platforms are inherently trustless systems – that is, they’re not directly tied to any nation-state, government, or body. They would argue that cryptocurrency is superior to traditional physical currencies because it is not dependent on, for instance, the U.S. federal government.
Regardless of whether you think that’s a good or bad thing, it’s not entirely accurate. Cryptocurrency aren’t really trustless at all. They are still reliant on the underlying infrastructure powering cryptocurrencies like Bitcoin, much of which is located in China. The Chinese government could theoretically make changes to cryptocurrencies at a fundamental level by imposing its will on the data miners who keep them running.
Libra: Not all it’s cracked up to be
Facebook’s contribution to the cryptocurrency world — Libra — has been hyped in some corners as the answer to a variety of financial issues. In particular, the platform was designed to facilitate international payments and eliminate unnecessary transaction costs and fees.
Instead, A better approach would have been for Facebook to create its own bank that could act as a primary financial institution for its users. The company could have focused on building banking systems customized to each nation or region, addressing regulatory demands and driving down costs. Once those had been established and public trust was built, then it would make sense to simply link each one to create a global network.
Is stable coin the answer?
Stable coins have grown in popularity as a way to back cryptocurrency with assets that hold real value, much in the same way U.S. currency used to be on the gold standard. Those assets could be other currencies or commodities — virtually anything, really.
There are a couple of issues. For one, it essentially recreates a system that already exists. The other concern is that it could make it easier for people to commit fraud since. It’s not as easy to audit and monitor as traditional currencies.
For instance, people living in countries with weak currencies may be better off investing in. Bitcoin than buying local stocks and bonds.
Cryptocurrency’s future outlook is still very much in question. Proponents see limitless potential, while critics see nothing but risk.
Bitcoin has also been cut in half over the past two months, briefly falling below $30,000 Tuesday morning. Ethereum is more than 50% off its highs from early May. Many other crypto assets have fallen even further with a number of tokens down 70% to 90% in value.
If you’re new to investing in the crypto space or just interested now that prices. Have fallen substantially, there are a number of lessons we can take away from the current crash.
Crypto is extremely volatile
The daily price volatility for Bitcoin over the past three years is 75%. In comparison, the S&P 500 daily volatility over the past three years has been 22%. So Bitcoin has been roughly four times as volatile as the stock market.