cryptocurrencies will determine the future of finance
Whether an ordinary person or Marion Laboure, senior economist and analyst at Deutsche Bank Research, it is impossible to overlook the $2 trillion crypto economy.
As per the recent research-based interview published on the Deutsche Bank website, she has emphasised the valuable insights concerning the potential of the two leading cryptocurrencies, i.e., Bitcoin and Ethereum, to determine the future of payments globally.
What are cryptocurrencies worth? What are the challenges in adopting them?
In the report, Laboure said that several businesses have started to accept Bitcoin and Ethereum. However, a high transaction fee and long transaction time mean it is still not a common form of payment.
Currently, bitcoin is a less popular choice because it takes 10 minutes to validate a transaction and comes with a transaction fee of $20.
Laboure said that no government provides any backing to cryptocurrencies. People have no legal obligation to accept it as a means of payment. It makes Bitcoin different from the dollar or any other fiat currency,
Cryptocurrencies have the potential to be 21st-century digital gold. Bitcoin has deflationary properties similar to gold. It is highly volatile and is not widely accepted as a means of payment.
It will be more volatile in the future because of the following reasons.
Speculation and investments account for Approximately ⅔ of cryptocurrencies.
Due to the limited tradability of cryptocurrencies, the supply and demand equation remains unaffected by the rare large purchases or market closures.
The approach and attitude of investors and crypto enthusiasts have a significant influence on the price of cryptocurrencies.
They have become a popular hedge against inflation because of high value and limited stock.
Ethereum can be called digital silver when compared to Bitcoin is called digital gold.
Bitcoin has mainstream institutional support and the largest market capitalisation as it is the first-ever cryptocurrency.
Ethereum comes second. It has several practical applications in the blockchain industry, primarily in NFT and DeFi platforms. Therefore, it can lead the market in different ways.
Ethereum is known as digital silver due to the distinct application-based abilities of this cryptocurrency. But, other cryptocurrencies such as Polkadot, EVOL Coins, Solana, Binance and Cardano with their smart contracts are likely to give tough competition to Ethereum.
Major Disadvantages of cryptocurrencies
The two most pertinent issues with cryptocurrencies are:
Even though trading in crypto is attractive and profitable for individual users, the absence of regulation deters many investors from venturing into it.
Crypto mining has a considerable carbon footprint which is problematic for the environment.
Nevertheless, the latest technological developments are likely to bring in an eco-friendly crypto market. The Deutsche Bank analysts expect that by 2022 numerous countries can be expected to have a robust crypto regulatory framework.
Will CBDCs, cryptocurrencies, and cash coexist?
Cryptos are fully decentralised, while Central Bank digital currencies (CBDCs) are wholly centralised digital forms of fiat currencies and allow each one access to the transaction ledger.
Cash, CBDC and crypto will coexist. So, they will not be replaced by one another. In the past few years, several governments worldwide have been actively promoting digital payment options. With the surge and enforcement of CBDCs and cryptocurrencies, cash transactions might, in fact, decrease.
The government of India will launch the pilot project of its CBDC soon and is working on enforcing a cryptocurrency regulatory framework.
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