What Is Driving the Growing Confidence in Crypto?
Think back ten years, at where crypto was in the public consciousness. A decade ago, those who had heard of digital currency associated it almost entirely with criminal activity. In contrast, today, it is a legitimate, lucrative and highly popular asset class, in which governments, corporate giants and financial institutions are invested.
With Bitcoin cryptocurrency prices making headlines on a daily basis, the average investor is no longer asking: “What is a blockchain cryptocurrency?” Instead, they are examining how they can use digital assets as a means of preserving their wealth.
In this blog post, we will look at what held crypto back for so long and then what led to the rapid and seemingly permanent shift towards public confidence in crypto.
Is Crypto the Currency of Crime?
Even today, many people still believe digital currency is only used to commit crimes. While this is far from the truth, certain characteristics of blockchain make digital assets attractive to criminals, such as the anonymity and the limited regulatory oversight in the crypto space. Cryptocurrency crime has made some sensational headlines, but here are some actual facts:
According to the 2021 Crypto Crime Report, cryptocurrency crime dropped dramatically in the last year alone. In 2019, cryptocurrency crime constituted 2.1% of all crypto transfers (around $21.4 billion worth), while in 2020 that number fell to just 0.34% of transaction volume (around $10 billion lost to cryptocurrency cybercrime and fraud). Compare this with the $1trillion to 2 trillion money-laundered each year in fiat currency.
It should also be noted that the situation is improving by the day, as global financial regulatory bodies and individual governments begin to sit up, take notice and legislate in the crypto arena, aiming to keep pace with the rapid developments relating to this exciting emerging asset class. In addition, crypto service providers are getting better at plugging the holes in their systems and putting security measures in place to prevent against cryptocurrency cybercrime.
In addition, exchanges like Binance, for example, have now established contingency funds to cover any assets that are lost as the result of a cyberattack.
A New World of Crypto Holders
There are almost 2 billion people across the globe who are currently unbanked, meaning that due to living in rural areas without the necessary infrastructure, having a criminal record, or being undocumented, they don’t have access to financial services. In developing countries in particular, this can create serious issues for small businesses in remote locations without local banking opportunities that may need to make cross-border payments. This is where a blockchain-based, decentralized P2P network can really help, through the democratization of financial ecosystems, and is just one area in which we are seeing confidence in crypto rise.
Trust and Confidence through Institutional Investment
Without a doubt, the crypto market is gaining ground at an incredible pace and part of the reason for the growing popularity of crypto is the impact of the global pandemic, which decimated various countries’ economies, weakening fiat currencies and sending investors in search of an alternative.
Institutional crypto investment has soared recently, with financial institutions and corporations that once would have run a mile from crypto, now putting serious sums into digital assets.
For example, the Grayscale Bitcoin Trust owned by the investment firm Greyscale now holds 2% of the circulating supply of Bitcoin. Then, at the corporate level, Tesla and Square are buying millions in Bitcoin and Paypal is supporting crypto payments.
Confidence in Crypto Exchanges: Notable Successes
The popularity and legitimacy of crypto is partly based on the buzz around market successes that are gaining mainstream attention by generating huge profits for participants. For example:
The Coinbase Initial Public Offering (IPO)
Coinbase, the biggest centralized crypto exchange in the world, which had its IPO on April 14th 2021, started trading at $381. The fact that traditional investors were ready to jump in at the level is one of the strongest indications that crypto is now going mainstream. Coinbase, acryptocurrency trailbrazer, received a valuation of $85.7 billion, setting a new standard in the crypto arena.
Kraken Financial
Passing another crypto milestone late last year, Kraken, a centralized crypto exchange platform, received a US banking license, making it the first crypto company allowed to offer crypto products and services alongside traditional banking.
DeFi and CeFi
The last year has seen drastic measures taken to avoid global financial collapse, with negative interest rates, huge stimulus packages, and over-extended stock markets, leading many to turn to digital assets, as traditional institutions are losing a degree of public trust.
While Centralized Finance (CeFi), requires the trust of the account holder, Decentralized Finance (DeFi) offers a trustless environment, without middlemen.
Once the two come together, with CeFi institutions embracing blockchain technology, many believe we will have the best of both worlds. This can already be seen with the growth in crypto debit cards that are making it easier than ever to use crypto for everyday financial transactions.
Enhanced Legitimacy through the Implementation of CBDCs
Central Banks, world-over, have been moving forward, taking steps towards the creation of their own cryptocurrencies. Central Bank Digital Currencies (CBDCs) show how seriously governments are taking blockchain technology.
This has led to important high-level discussions about digital asset regulation and state-issued crypto that are vital if blokchain is ever going to see mainstream adoption.
Crypto Progress and Developments in Ethereum 2.0
Layer two scaling solutions are front and center in the effort to transition crypto to the mainstream. If the blockchain world wants to meet the needs of billions of potential users, it needs to scale up. Ethereum 2.0 has come about as a result of congestion on the network, from the low number of transactions per second (TPS) that, up to now, could be processed.
Through a series of upgrades and moves like switching to a Proof of Stake consensus algorithm, and blockchain sharding, Eth 2.0 aims to scale up from around 25 TPS to 100,000 TPS.
NFTs: A New Type of Digital Asset
If you haven’t heard of Non-fungible tokens (NFT’s), you must have been living under a rock for the past year. NFTs are a type of digital asset represented by code recorded on the blockchain, like a video clip or jpeg. Ownership and validity can be tracked and the NFT can be bought or sold just like any physical piece of art. The most famous NFT to date was the purchase of Beeple’s “Everydays: The First 5000 Days” NFT, which sold for over $69 million!
Those having a hard time seeing the inherent value of a virtual asset, and even some crypto enthusiasts, see this as a hyped-up bubble that is ready to burst. However, many analysts are arguing that while not all NFTs will survive, some will come through the other side stronger than ever.
NFTs have introduced a whole new market to the world of blockchain, with digital art serving as a test-case for how the technology has relevance in everyday life, beyond just cryptocurrency.
Confidence in a Blockchain System with Countless Applications
Aside from NFTs, there are important applications for blockchain technology in a wide range of verticals beyond finance, from healthcare, to gaming, and insurance among others.
Maintaining a record of all transactions and functioning distributed manner, blockchain can help businesses enhance speed and efficiency. It can secure data and personal information as well as reduce costs by getting rid of middlemen.
The growing confidence in crypto is generating heated competition, which is great, as it is driving innovation, ensuring progress towards more intuitive and cost-effective blockchain-based products and services in every sphere of life.
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Get more information about crypto arbitrage, or learn about a varied selection of cryptocurrency and blockchain based topics, on the ArbiSmart blog.