Cryptocurrencies are gradually becoming preferred means of exchange but there is still a lot to be done to secure its place as the future of money
By Segun Adekoye
The historic parable of the blind men and an elephant illustrates how different people feel different parts of an animal they have never experienced or seen and how their opinions differ based on their interaction. This fable easily brings cryptocurrencies into the limelight as the ancient elephant, while the wider society is grappling with what to make of it. Cryptocurrencies have been likened to the Dutch tulip bulb bubbles of the 17th century as well as being named the future of money. The concept of the first Blockchain was published in a whitepaper released by an anonymous person or perhaps people who used the name Satoshi Nakamoto in October 2008. The following year witnessed the release of the Blockchain technology as a core component of the world’s most popular cryptocurrency – the Bitcoin.
Prior to this time, different companies had tried to create a digital currency but experienced issues around double-spending. The problem with double-spending is that digital currencies can be easily cloned, copied in a way that the money is spent while the original token or its copy is retained. Bitcoin tried to prevent the double spending problem by ensuring that transactions were publicly recorded in chains of blocks that were distributed across the world through nodes and they achieved consensus by solving complex cryptographic puzzles. Despite this prominence, adoption, and immutability, the world’s first cryptocurrency is still far from perfect for mass adoption. Other developers and organizations have over the years, tried to solve problems plaguing the pioneer cryptocurrency, however, most have only succeeded in solving bits of the problem.
Currently, there are over 1700 cryptocurrencies in existence and almost 1500 of them are publicly listed on Coinmarketcap (a public database of digital tokens). Some of these cryptocurrencies reside on their protocol and are used as a means of exchange or a store of value such as Bitcoin, Ethereum, and Litecoin. Others are simply tokens that are issued on smart-contracting platforms; hence, they are easy to create and are used as utility tokens. The prevalence of Initial Coin Offerings in 2017 led to the sporadic bloom of the cryptocurrency space as lots of organizations discovered unregulated ways to raise money for business ideas in a market that was swayed by fear, greed, and optimism. This also led to the capitulation of these tokens since February 2018, as different governments and authorities sought to clamp down illegal activities while trying to prevent losses to innocent citizens by regulating activities of traders and exchanges that list digital tokens.
The crypto enthusiasts within the Blockchain tech community would argue that the essence of the tech is to facilitate decentralization and anonymity of transactions. While the creation of a deflationary currency outside the control of governments and policies seems appealing, it is apparent that the decentralized and anonymous nature of crypto also happens to be its worst nightmare. From the creation of Silk Road, an online black market that allowed the sale of illegal drugs using bitcoins, to over 80 percent of Initial Coin Offerings (ICOs) that happened between 2017 and 2018 labeled as scams, users may be rethinking the anonymous feature of the cryptocurrencies they transact with. Institutional investors that are looking to make a profit from the burgeoning digital economy are hoping for better governance and stiffer regulations to control aspects around market manipulation, token security, and insurance of assets. It is evident that the young, tech-savvy Generation-Z seems to warmly embrace cryptocurrencies and ideas that disrupt the norm. This generation wants privacy and control. They also want convenience and security. As it stands, the underlying tech is available but cannot meet their needs. For instance, if non-blockchain gamers decide to move over to blockchain games and exert the demand they use on Facebook apps or other gaming platforms, on say Ethereum-based games, it would most likely affect the overall performance of the protocol.
Without a doubt, cryptocurrencies are here to stay as well as their underlying technology – the blockchain. IBM’s Hyperledger Fabric allows corporate organizations seeking to create blockchain solutions within a private, permissioned and secure network without exposing themselves to the risks of using public blockchain solutions. These means they are not inundated with problems around speed (transaction-per-second) plaguing some public blockchains. Newer altcoins are also seeking ways to run functionally using minimal electricity resources. The U.S SEC is playing a key role in the classification of different tokens as securitized and non-securitized tokens. This move is also putting organizations issuing tokens, in check. Different institutions are discovering use cases for the blockchain in their businesses and are adapting their business models to accommodate blockchain solutions. Some of them are leveraging the use of cryptocurrencies as utility tokens to reward loyalty, have users pay for services such as electricity or in the case of Basic Attention Token (BAT) get incentivized for watching ads online.
As more people get paid with tokens for doing micro tasks, incentivized for loyalty, feel more secure storing their money in cold wallets or online wallets and watching the value of those tokens rise, the underlying technology would get adopted by different governments seeking to tokenize different areas of their economies. For cryptocurrencies to become adopted by the legislators, the clamour for anonymity must reduce with administrations knowing that it will not be an avenue to evade taxes and launder money. The wider world would adopt the tech easily as blockchain start-ups create better user experiences with their products ensuring that onboarding, adoption and continued use of their cryptocurrency is more convenient than obtaining and transacting with cash or a debit/credit cards. Strings of long alphanumeric characters in crypto have to shorten into 8-10 numbers or letters that can be easily remembered.
In the next couple of years, we should begin to see the proliferation of two distinct classes of assets that would be in most demand among cryptocurrencies. These would be Stable coins and Securitized tokens. People may begin to adopt stable coins with functional wallets and high transaction speeds for day-to-day transactions, while securitized tokens will replace shares in emerging start-ups and existing organizations looking to onboard tech enthusiasts as shareholders. Larger institutionalized stock exchanges would begin to add crypto portfolios to their day-to-day trading. To gain mass appeal, cross-chain atomic swaps will need to occur seamlessly, reduce time and money lost by using centralized exchanges, and different protocols will need to work in consonance, keeping interoperability as a priority while complimenting themselves using their tech strengths.
Editor’s note: This article was originally published in the Spark Magazine. Find the magazine here to read other articles.
Segun Adekoye is a writer of poems, short stories and feature stories. A digital marketing strategist, lifestyle and technology enthusiast, trained at the New York Film Academy, Harvard Business School and Kellogg School of Management. His write-ups have been featured on BBC UK, CP Africa, YNaija, 360nobs, naijaPOSE and Nairobi-based technology journals.