Table of Contents
- 1 Overview
- 2 Government support
- 3 Money Laundering
- 4 Decrease in the Value of Fiat Currencies
- 5 Global Warming
- 6 Virtual Existence
- 7 Bitcoin Devaluation
- 8 Systematic Governmental Interference
- 9 The Anonymity of the Blockchain
- 10 Transaction Fees
- 11 The Future of Cryptocurrencies
- 12 Final Words
- 13 Meta Description
You are probably familiar with the story of Bitcoin Pizza Day, celebrated in May 2010 as the day of the first commercial transaction using bitcoin. On that day, Laszlo Hanyecz paid 10,000 bitcoin (estimated to be worth $40, making each bitcoin worth $0.0004) to purchase two pizzas. On its 11th anniversary in 2021, the price of one bitcoin reached an unprecedented amount of $63,000! This article aims to explain two of the most important contributing factors in bitcoin’s price increase, namely, governmental support for cryptocurrencies and the development of new cryptocurrency projects.
One of the fundamental reasons behind the bitcoin price increase is the approval as a means of payment in different countries worldwide. On the other hand, the bitcoin price will decrease when cryptocurrency trading is prohibited in given countries. Governments have good reasons to stand against cryptocurrencies; excuses such as:
Cryptocurrencies are implemented on the blockchain system, a peer-to-peer network where encrypted data is transferred from one node to another without a third party. This quality makes cryptocurrencies almost untraceable, and governments usually do not welcome such activities in their economy. In addition, governments can claim that cryptocurrencies can create problems such as money laundering or fraud.
Decrease in the Value of Fiat Currencies
With the prevalence of bitcoin and other cryptocurrencies, the fiat currencies’ value is at stake. This is because fiat currencies are the pillars of different economies, and they are in the government’s control. So naturally, any alternative that reduces the role of the government is discarded, especially in developing countries where the private sector is strictly limited. Also, world powers are cautious when it comes to cryptocurrencies; because, on the one hand, they do not want to miss out on the promising market of cryptocurrencies, and on the other hand, they do not want a collapse in the value of their fiat currency in case the market dissolves.
The mining and transactions of cryptocurrencies, especially those based on the Proof-of-Work protocol, consume a tremendous amount of electricity. Since most of the electricity is generated in plants that use fossil fuels, environmentalist governments regard cryptocurrencies as a threat to the environment because of their negative role in climate change.
A cryptocurrency is essentially an encrypted block of data that records transactions, and it is valued based on the CPU cost of the formation of one block. However, some governments claim that this block of data has no intrinsic value and regard the mining of cryptocurrencies as an unjustifiable activity because the problem (the puzzle) it solves does not benefit the global economy.
Despite the abovementioned facts, when the cryptocurrency market gains in popularity and the demand for certain assets increases, so does the price. Therefore, some analysts believe that the bitcoin price will continue to rise until it holds a significant value compared to the global economy. Still, it is unlikely that bitcoin substitutes fiat money or cherish a $1 million value. In fact, some hypothetical theories warn against the disintegration of bitcoin by 2030:
Systematic Governmental Interference
Currently, the mined bitcoins are roughly worth $1 trillion, a little more than the available gold on Earth. That is, the asset’s value is already overpriced, and if the ascending trend continues (and considering that most altcoins follow bitcoin as a yardstick in price), the cryptocurrency market will be an excellent place for downsizing liquidity. For example, if by 2022 the bitcoin value rises to $100,000 and then the market corrects itself to half, i.e. $50,000, the equivalent of the whole available gold on Earth will be lost! Effectively, the money is transferred from those who buy at high prices to those who sell at high prices; now, if the government manages to purchase bitcoin at the lowest low and sell it at the highest high, the buyers’ (mostly common people’s) capital will be destroyed. In return, the government’s fiat currency will gain in value and compete against other powerful currencies worldwide.
The Anonymity of the Blockchain
Blockchain is a peer-to-peer network operating without the presence of a central administration. Also, wherever money is circulating, there should be an economic system, and the blockchain world is like a parallel economy to the State’s central economy. Moreover, although popular centralized exchanges have a strict identity verification policy, decentralized exchanges work incognito. This is a threat to the government’s authority and its economic system, and therefore they would pursue the market’s deterioration.
The transaction fees cost a lot of money, and it takes a lot of time for a transaction to be verified in the bitcoin blockchain. This is one of the limitations of bitcoin and can eventually deprive bitcoin of its popularity.
The Future of Cryptocurrencies
By 2030 cryptocurrencies will get marginalized, and fiat currencies will be implemented on the blockchain as a substitution for cryptocurrencies. The advantage of fiat currencies is that it is hedged by physical gold. Furthermore, the government-issued cryptocurrencies would be easily transferable worldwide, and the transaction fees would be reasonable. However, traders’ identities must be verified. Still, the verification would involve a fingerprint scan or face scan rather than the more traditional methods like taking a picture of yourself holding your ID card.
By 2030 technological giants such as Google, Apple, Amazon, Tesla, Huawei, etc., who work in accordance with the central government, will possess the new government-issued cryptocurrencies and control the market. For example, Elon Musk, Tesla’s CEO, will have a predicted $1,000 billion worth of wealth by 2030, thanks to the two significant projects the company pursues, namely Space X and smart cars. In other words, a considerable share of the future economy will be in the hands of Mr Musk. Still, we can guarantee that his financial power would serve the U.S government policies and the policies, in return, would support the company.
The expansion of cryptocurrencies has been a potential threat to the governments’ authority over the economic systems. Also, they have good reasons to ban cryptocurrency trading anytime they please. For example, the government can argue that the anonymity of the blockchain network can result in money laundering or weaken the state’s fiat currency. On the other hand, some environmentalist approaches can hinder cryptocurrencies’ (especially bitcoin) development thanks to the massive energy consumptions needed to form one block of data, particularly those that use the proof-of-work protocol. Moreover, the transaction fees of less recent cryptocurrencies, particularly bitcoin and Ethereum, are considerably high, and all these reasons may bring about the fall of the cryptocurrency market. It is estimated that by 2030 fiat currencies will be implemented in the blockchain network, and since they would be easily transferable across the globe and are hedged by physical gold, they would substitute the cryptocurrency market.Join Us to Learn How to Succeed in Your Trading person_addRegister