Is Cryptocurrency Really the Future?

Contributor, Benzinga
verified by Logan Ross

Cryptocurrency enthusiasts claim that blockchain technology is the future. Billionaire venture capitalist Tim Draper gave his remarks on Bitcoin on Benzinga’s Moon or Bust livestream, stating that Bitcoin will cause an anthropological change to society. But will the future of cryptocurrency revolve around Bitcoin, or something else?

Some see Bitcoin as antiquated technology, as its proof of work consensus model and restrictive parameters greatly limit the potential for Bitcoin. With low throughput and no smart contract capabilities, Bitcoin may have trouble scaling.

What is Blockchain Technology?

Blockchain technology is the backbone of most cryptocurrencies currently on the market. The key features of a blockchain are immutability, security and decentralization. Essentially, blockchains are decentralized databases used to keep an account of who owns the cryptocurrency on a blockchain.

Since Bitcoin’s inception, blockchain technology has taken huge strides to become more usable, scalable and secure. Since a blockchain’s ledger is decentralized, the blockchain’s code must find a way to come to consensus — essentially finding a way to verify transactions correctly. The first consensus model was proof of work, and Bitcoin still uses this model to validate transactions on its blockchain.

Since then, however, new consensus models have been developed that are much more efficient at scale. Of these, proof of stake is the most popular, and most cryptocurrencies today are proof of stake. Proof of stake consensus is not only more environmentally friendly, but it significantly increases transaction throughput while simultaneously reducing transaction fees.

While Ethereum is currently proof of work, it has plans to migrate to proof of stake with Ethereum 2.0. There is no set release date for this network upgrade, but it’s expected to launch sometime over the next 12 months. The Eth2 testnet has been live since November, and billions of dollars in Ether have been staked on this testnet to secure the network. 

Why Decentralization Matters

Decentralization is arguably the most important feature of blockchains. Unlike fiat currency, there’s no entity that controls the circulating supply of Bitcoin. This gives investors the security of knowing that their funds are finitely scarce. Unlike gold which can continuously be mined, there is a set supply of bitcoin that will ever be in existence. Plus, Bitcoin can be stored and transferred much easier than gold, making it a more practical store of value for the future.

The decentralized nature of blockchains opens up endless possibilities for trustless and immutable financial functions. Projects like Ethereum are not only decentralizing the monetary system, but Ethereum is also decentralizing the underlying financial institutions that are necessary for a truly decentralized future.

Ethereum can do this through a novel technology called smart contracts. Smart contracts are code that’s uploaded to the blockchain, allowing them to benefit from the decentralized, permissionless and trustless nature of blockchains. So how are smart contracts replacing traditional financial institutions, and how are users benefiting from this new system?

The Future of Lending, Investments and Ownership

Most of the lofty goals in the cryptocurrency space are driven by Ethereum’s ecosystem. Decentralizing financial functions such as exchanges, insurance, governance and ownership are already coming to fruition through smart contract applications.

Smart contracts power decentralized exchanges (DEXs) like Uniswap, Sushiswap and 0x. These platforms let anyone swap cryptocurrency without an intermediary, creating a platform that no one controls. After centralized exchanges halted the trading of GameStop (NASDAQ: GME), more attention has been paid to the control that centralized exchanges have over their users.

Lending is another industry that’s being revolutionized by blockchain technology. Aave is the leading lending platform built on Ethereum and it has over $10 billion of funds being put to work. Those who use Aave can instantly be approved for loans and earn high interest from savings accounts, all while knowing your funds are being safely managed by autonomous code on the blockchain.

Yet another sector that’s being revolutionized by Ethereum is ownership. Nonfungible tokens (NFTs) can be minted on Ethereum’s blockchain network, allowing for verification of digital ownership. While gaming and art have been the core industries affected by NFTs so far, these tokens have the potential to verify ownership of plots of land, car deeds, business documents and so much more.

Bitcoin, Ethereum and Altcoins

When talking about the future of cryptocurrency, it’s clear that Bitcoin will play a role in this decentralized future. Many investors see Ethereum in the same light, as millions of users have already transferred trillions of dollars worth of cryptocurrency on its network. Altcoins, on the other hand, are much more of a gamble than well established cryptocurrencies.

While some altcoins will likely appreciate even more than Bitcoin and Ethereum in the future, many of these cryptocurrencies will undoubtedly fail. Before investing in altcoins, you should ask yourself a few important questions.

  • Does the altcoin have a real-world use case? If so, does it actually benefit from being decentralized?
  • Does this altcoin have a competitive edge over its competitors?
  • How does the altcoin accrue value? Is it from smart contract revenue, speculation, governance or a mix of all 3?
  • What regulations could potentially be put in place that may affect your altcoin? Does the project have any venture capital backing that may help lobby in favor of the altcoin?

Cryptocurrency Price Movements

The cryptocurrency markets have seen a sharp downturn in the past few months, with Bitcoin and Ethereum both down over 50% from their all-time highs. Most altcoins are down even more, causing some investors to panic sell their cryptocurrency positions. 

However, Bitcoin and Ethereum are still up well over 100% in the past year, and experienced cryptocurrency investors are used to this kind of volatility in the markets. Buying cryptocurrencies during significant dips is often the best way to make a large return from crypto, but be sure to do your own research and only invest money that you can afford to lose.

Where to Invest In Cryptocurrency

There are plenty of U.S cryptocurrency exchanges that you can trust to invest in cryptocurrency securely. Of these, Coinbase and Gemini are the most popular among crypto investors. These apps have simple user interfaces, and they’re easy to use even if you’ve never invested before.

If you’re looking for a one-stop shop for stocks and cryptocurrency, then Robinhood and Webull are good options. These exchanges don’t support as many altcoins as cryptocurrency exchanges, but they do support Bitcoin and Ethereum. 

get started securely through Webull’s website
Best For
Low Minimums
N/A
1 Minute Review

Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.

Webull is widely considered one of the best Robinhood alternatives.

Best For
  • Active traders
  • Intermediate traders
Pros
  • No charges to open and maintain an account
  • No account maintenance fees or software platform fees
  • Intuitive trading platform with technical and fundamental analysis tools
Cons
  • Only offers 14 coins
get started securely through Exodus Wallet’s website
Best For
Staking Crypto + Earning Rewards
N/A
1 Minute Review

Founded in 2015, Exodus is a multiasset software wallet that removes the geek requirement and keeps design a priority to make cryptocurrency and digital assets easy for everyone. Available for desktop and mobile, Exodus allows users to secure, manage and exchange cryptocurrencies like Bitcoin (BTC), Ethereum (ETH) and more across an industry-leading 10,000-plus asset pairs from a beautiful, easy-to-use wallet. The noncustodial functionality is encrypted locally on users’ own devices, ensuring privacy, security and complete control over their wealth. Exodus is on a mission to empower half the world to exit the traditional finance system by 2030.

Best For
  • Newcomers to the cryptocurrency world
  • Ease of use
  • Trezor integration
Pros
  • Free
  • Huge selection of cryptocurrencies
  • Excellent 24/7 customer support
  • No personal info needed
Cons
  • FTX app not available on the mobile app
get started securely through SoFi’s website
Best For
Beginners
N/A
1 Minute Review

SoFi takes a modern approach to personal finance. It recently created buzz with the release of SoFi Crypto, a way to trade cryptocurrency on the app. The platform allows investors to familiarize themselves with crypto. It offers a high level of security, great customer support and an intuitive interface. However, it does have shortcomings with the number of cryptos offered and geographic restrictions.

Best For
  • Beginners
  • Centralization of your money
Pros
  • Charges low or no fees for some functions within the interface.
  • Relies on Coinbase, a very secure platform, to process transactions.
  • Presents a low barrier of entry — you only need $10 to start trading.
Cons
  • Currently only offers 28 coins.
get started securely through eToro’s website
Disclosure: eToro USA LLC; Investments are subject to market risk, including the possible loss of principal. Virtual currencies are highly volatile. Your capital is at risk.
Best For
Copy Trading
N/A
1 Minute Review

eToro is headquartered in Cyprus, England and Israel. A major eToro plus is its social trading operations, which allows new clients to copy trade the platform’s best performers. Its social trading features are top notch, but eToro loses points for its underwhelming research and customer service features.

Best For
  • Investors looking to CopyTrade other traders
  • Simple user interface
Pros
  • Several major cryptocurrencies and altcoins
  • Expansive network of social trading features
  • Large client base for new traders to imitate
Cons
  • Only 29 coins available
Invest In Crypto securely through Gemini Crypto’s website
Best For
New Investors
N/A
1 Minute Review

Gemini is a cryptocurrency exchange and custodian that offers investors access to over 100 coins and tokens. Founded in the US, Gemini is expanding globally, in particular into Europe and Asia. Offerings include both major cryptocurrency projects like Bitcoin and Ethereum, and smaller altcoins like Orchid and 0x.

Gemini is 1 of the only brokers with multiple platform options based on skill level. New investors will love the streamlined interface of Gemini’s mobile and web apps, while advanced investors might appreciate all the tools that come with ActiveTrader. 

In addition to a host of platform choices, Gemini users also have access to insured hot wallets to store tokens without worrying about digital asset theft. Learn more about what Gemini can do for you in our review.

Best For
  • New investors looking for a simple mobile and web app
  • Day traders looking to use technical analysis tools
  • Users looking for a 1-stop-shop to buy, sell and store all of their cryptos
Pros
  • Easy and quick signups — can get started in as little as a 5 minutes
  • Multitude of platforms to accommodate traders of all skill levels
  • Hot wallets include insurance to protect your from theft and hacking attempts
Cons
  • Charges both a commission and a convenience fee for users buying and selling through the desktop or mobile app
earn free crypto securely through Coinbase’s website
Best For
Coinbase Learn
N/A
1 Minute Review

Coinbase is one of the Internet’s largest cryptocurrency trading platforms. From Bitcoin to Litecoin or Basic Attention Token to Chainlink, Coinbase makes it exceptionally simple to buy and sell major cryptocurrency pairs. 

You can even earn cryptocurrency rewards through Coinbase’s unique Coinbase Earn feature. More advanced traders will love the Coinbase Pro platform, which offers more order types and enhanced functionality.

Though Coinbase doesn’t offer the most affordable pricing or the lowest fees, its simple platform is easy enough for complete beginners to master in as little as a single trade.

Best For
  • New cryptocurrency traders
  • Cryptocurrency traders interested in major pairs
  • Cryptocurrency traders interested in a simple platform
Pros
  • Simple platform is easy to operate
  • Comprehensive mobile app mirrors desktop functionality
  • Coinbase Earn feature rewards you with crypto for learning about available coins
Cons
  • Higher fees than competitors

Threats to Cryptocurrency Adoption

When investing in any new technology, there are greater risks than most other investments. Cryptocurrencies are still speculative investments, and use cases are still being developed across the board. Decentralized protocols may see more strict regulations in the future, as most of these platforms are anonymous. Also, traditional financial institutions have huge influence over government regulations, so if cryptocurrency becomes a direct competitor to these firms, lobbyists may push for more strict regulations.

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