Guest blog by Chad Fichardt, CEO at Aziza Project
On 7 January 2021, the total cryptocurrency market hit an all-time high, exceeding $1 trillion for the first time. The Tesla announcement that it bought $1.5 billion worth of Bitcoin and that it would start accepting it as a payment method for its products, pushed the market up. The company said it purchased Bitcoin for “more flexibility to further diversify and maximize returns on cash.”
Cryptocurrencies, driven by blockchain technology, in essence shift human intervention to technology. The World Economic Forum defines blockchain as an early-stage technology that enables the decentralized and secure storage and transfer of information.
It has the potential to be a powerful tool for tracking goods, data, documentation and transactions. It can cut out intermediaries, reduce corruption, increase trust and empower users. With so much misinformation and behind-the-scenes manipulation being exposed in today’s world, there is a high demand for a new trust-less system.
Cryptocurrencies (coins or tokens) represent investment opportunities for people who have been excluded from sophisticated traditional financial instruments that create wealth. For small amounts, anyone can now invest in a promising crypto project with the proper research and a sound approach to building a portfolio of quality crypto assets.
Investing in crypto may seem complex, however, the same principles apply to it as when investing in any other asset, which makes the transition to crypto investing easier than people may anticipate. Innovation around investing is also occurring where you can now stake, lend, earn, and swap coins in your favorite project.
Bitcoin is the Don of cryptocurrencies. It arrived first and, while many other cryptocurrencies have had time to improve certain aspects of its technology, it has 12 years of momentum behind it and is not going away.
Ideologically, it taps into core human needs of trust, control, freedom and represents a means to break away from the current system’s flaws. Another leading aspect of Bitcoin is its scarcity, with a finite amount of Bitcoins being available. Due to the mathematical underpinnings of Bitcoin, supply is very measured, which makes it a long term game.
The brand has immense equity within the crypto world and is the bridge to mainstream adoption in the ‘outside’ world, which is finally upon us. We see major banks, hedge funds, payment providers and other financial institutions facilitating and investing in crypto and governments, such as Japan and Switzerland embracing the technology.
Other major organizations have given a clear signal that investing in cryptocurrencies is sound business – 2020 saw some of the biggest names from Wall Street champion Bitcoin, including billionaire hedge fund investors Paul Tudor Jones and Stanley Druckenmiller. In December 2020, Massachusetts Mutual Life Insurance Co (MassMutual) purchased $100 million in Bitcoin for its general investment fund and digital payment services provider, Square Inc invested $50 million, both as a hedge against inflation.
All of this provides credibility for individuals still on the fence about crypto. My view is that Bitcoin will remain as the primary store of value, while other more innovative protocols may win the race to become the transactional crypto of choice.
Mastercard Inc said that it would begin allowing merchants to accept some cryptocurrencies on its network later this year, marking the latest embrace of digital coins by a traditional payments player and Amazon is preparing to launch a ‘digital currency’ project in Mexico.
Finally, Bitcoin is almost impossible to shut down. Undoubtedly, you can regulate individuals and exchanges and impose taxation on users, but the underlying nature of the Bitcoin blockchain was designed to be enduring.
Potential beyond money
The benefits of blockchain and crypto based systems are that they have an almost universal potential for application in the real world. We are seeing many projects focus on decentralized finance solutions, so that we can transact and move money seamlessly around the globe.
In addition, there is significant capital being invested into supply chain crypto projects, voting, information security, social media and renewable energy. There are even projects that are using crypto to increase tax rebates.
We are witnessing the emergence of a new world that will have far fewer obstacles for ordinary people to participate. While its underlying operations are very different to fiat currency, our human interaction with it is almost identical to fiat, e.g. exchanges, markets, withdrawals, debit cards etc.
For me, the above examples show that new systems are emerging that are far-reaching and independent of overreach and interference.
Objections to Cryptocurrencies
There are objections to cryptocurrencies and blockchain technology and one of these is how many there are. As of January 2021, there were more than 4 000 cryptocurrencies in existence. However, most scams target people who are looking to get rich quickly. So if you stay true to the principles of long term investing, you should be able to avoid these.
Complexity is another reason why many avoid crypto. The jargon and buzzwords do confuse those who are trying to become crypto savvy. Some crypto projects are highly complex and are focused on bleeding edge technology. When in doubt stay away. However, as end user interaction with crypto becomes normalized, this should become less of an obstacle.
There is also a perception that cryptocurrencies are used in criminal and illicit activities. However, this is a small percentage in the transactional universe of all crypto and pales in comparison to traditional fiat currency dark or illicit dealings.
Governments still view the industry with some skepticism and this is demonstrated by the US nominating cryptocurrency and blockchain-savvy Gary Gensler to head up the Biden administration’s Securities and Exchange Commission. This could finally see a more concerted push to regulate the digital asset sector, as he has been a vocal critic over the lack of regulation governing cryptocurrencies for nearly a decade.
Possibilities of Cryptocurrency
It enables transactions across borders with less of the middle man and more opportunities to do work internationally and taps into different available funds. With mobile phones use increasing daily and the power of blockchain advancing yearly, this technology can be applied everywhere, in some form. Being paid from anywhere fast is now a reality. Transaction fees are on the decline. In fact, the entire internet has the potential to not just be a place to access information and connect, it may soon become one giant bank where simple online activities are integrated with earning and transacting.