Like most of the markets, the cryptocurrency market also faced a massive drop because of the global Covid-19 pandemic in March 2020. Different from the other markets, cryptocurrency markets recovered from this massive drop really quickly and cryptocurrency’s total market cap nearly rose 20 times of its value compared to March 2020.
During this process, especially in the start of 2021, the popularity and the demand for cryptocurrencies had a huge impact and people started to argue if the cryptocurrencies will be a payment method in the future or even beat up other fiat currencies. We have already seen some companies like Tesla accepting Bitcoin as a payment method, Visa supported cryptocurrency cards used in payments, some online casinos like Ethereum Casinos where you can use Ethereum instead of a fiat currency while depositing to the website.
Increase in Popularity
As mentioned above, in the last year cryptocurrencies massively grew and starting from 2021, its popularity increased a lot. There are already thousands of different cryptocurrencies/coins in the market and we see new coins are being listed in the different markets. Since we can consider those new, upcoming coins as a new project, we see that after they get listed, the coins’ prices are most likely to increase which creates a big demand in the developing countries like Nigeria, Vietnam, Philippines, Turkey etc.
During the rally, nearly all of the cryptocurrencies are making massive gains in their coin/USD parity which caused multiple gains for the users who use weak currencies against the US Dollar, like Turkish Lira. Moreover, in addition to the increase in popularity among individuals, some corporate companies also started to see Bitcoin as an investment tool which created a more optimistic expectation for the future of cryptocurrencies.
The increase in the demand for cryptocurrencies also caused an increase in the transactions that are being made and more miners are needed for this in order to record the transactions because as a result of this process, the miners receive their payment as cryptocurrencies.. However, the mining process requires lots of electric consumption and it is not sustainable until renewable energy is used in the mining process.
As the climate crisis is one of humanity’s biggest concerns, being not sustainable could be the end for cryptocurrencies. However, some cryptocurrencies, like Ethereum, changed the method of the coin’s generation from mining to staking. Staking is a way of participation on a crypto’s blockchain by using your coins to validate other transactions. As a reward of this, the users who stake their coins get more coins. Unlike mining, staking barely requires any electricity and produces less heat, which makes it way more sustainable than the mining method. Thanks to the methodological developments like this, cryptocurrencies are ensuring that they will have a steady place in the future.
Advantages and Disadvantages
Many crypto enthusiasts see Bitcoin as the leader of the crypto market and it is not really wrong to say according to cryptocurrencies’ market caps. When we look for the advantages of Bitcoin over the fiat currencies, we see that the supply of Bitcoin is fixed and this makes it less vulnerable to hyperinflation. However, this doesn’t imply that it is a pure advantage of Bitcoin because this situation can cause deflation, which causes other problems according to economic theory.
The second claimed advantage is that all the Bitcoin transactions are recorded anonymously and because it is decentralized, those records cannot be edited by anyone. Also, the transactions are encrypted in the blockchains in order to sustain its anonymity. Yet again this doesn’t mean that it is a pure advantage. Because it is decentralized, there is no institution to ask for help in a case of fraud or etc. which makes Bitcoin or other cryptocurrencies to seem “trustless” compared to banks or stock markets but there are several ways of protecting your cryptocurrencies.
When we talk about its disadvantages, we see that according to economic theory, money has three functions: a medium of exchange, a store of value and a unit of account. Bitcoin is an excellent exchange medium thanks to its blockchain system and anonymity but using it for other transactions gets more expensive as the value of Bitcoin gets higher.
During 2020, it ranged from 28 cents to 13.41 dollars. Also, because it is a relatively new technology compared to banks, it requires more technological awareness, which makes it hard especially for older generations. Because of this, most of the traders or cryptocurrency users use a third party provider and there have been several cases where the users got scammed by their providers.
Furthermore, the usage of Bitcoin as a store of value is limited by its volatility because its price is continuously growing up in massive percentages compared to other currencies. For example, in 2011 you could buy a pack of ramen with 1 Bitcoin on the other side in 2020 you can nearly open a ramen factory with 1 Bitcoin in several countries. So, in this case it makes more sense to hold your Bitcoins or other cryptocurrencies instead of spending it and this turns the cryptocurrencies into an investment tool instead of a daily used value.
To sum up, the popularity and the demand for the cryptocurrencies increased a lot in the last year and it is more likely to increase in the following years. Like all the other inventions or developments, it will be hard for the society to embrace it and it will take some time. However, if the needed conditions are met, the infrastructure is set for this transformation.
It wouldn’t be a dream that Bitcoin or Ethereum or any other cryptocurrency will take over fiat currencies. The corporates already started to consider Bitcoin as an investment tool and some companies are accepting Bitcoin as a payment method. As it gets more popular, the trust for the cryptocurrencies will increase, so that their usage and validity will increase.