Written by: Antony Bream, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
As global markets suffer one of their biggest drops since the crash of 2008, from the impacts of the COVID pandemic, war in the Ukraine, the political uncertainty across some of the most developed nations in the world and rising global inflation, cryptocurrencies are being hit hard.
For those not familiar with or investors in cryptocurrency, the idea first emerged in 1983, when American cryptographer David Chaum published a conference paper outlining an early form of anonymous cryptographic electronic money. The concept was for a currency that could be sent untraceably and in a manner that did not require centralised entities (i.e., banks). In 1995, Chaum built on his early ideas and developed a proto-cryptocurrency called Digicash. It required user software to withdraw funds from a bank and required specific encrypted keys before said funds could be sent to a recipient.
Bit Gold, often deemed a direct precursor to Bitcoin, was designed in 1998 by Nick Szabo. It required a participant to dedicate computer power to solving cryptographic puzzles, and those who solved the puzzle received a reward. Combined with Chaum’s work, it results in something that comes very close to resembling Bitcoin. However, Bitcoin also suffered heavy losses.
But Szabo could not solve the infamous double-spending problem (digital data can be copied and pasted) without the use of a central authority. As such, it was not until a decade later when a mysterious person or group, using the pseudonym Satoshi Nakamoto, set the history of Bitcoin and later cryptocurrencies in motion by publishing a white paper called “Bitcoin – A Peer to Peer Electronic Cash System.”
Ten thousand bitcoin for two large pizzas with the idea seems laughable today, but this is considered the first real-world Bitcoin transaction in history.
Now famously known as “Bitcoin Pizza Day” May 22, 2010 witnessed the first-time bitcoin — which reached a peak of $69,000 per piece in November 2021 — was used to purchase something tangible.
In order to get those two pizzas, the bitcoins were sent to a volunteer in England, who made a transatlantic phone call and paid for the $30 delivery of pizza to Florida-based programmer Laszlo Hanyecz.
Thirty dollars may not seem like much now, but it was an important step in the history of cryptocurrency, which has since become arguably the most exciting technological innovation of the 21st Century.
The crypto market free-fall marks the most dramatic drop in this market in years. Prices declined by over 60%, with a global recession looming and inflation rates rising. Billions of dollars of cryptocurrencies sank, with Bitcoin briefly sinking below $20,000 in June 2022, the lowest it had been valued since December 2020. And Ethereum, or Ether (ETH) being the cryptocurrency generated by the Ethereum protocol as a reward to miners in a proof of work system for adding blocks to the blockchain, falling below $800 during the same month.
With stocks also trading lower, investors have been taking a knock. This has affected smaller ecosystems and crypto services too, with the survival of tokens and crypto ecosystems coming into question. In investment terms, some may want to cash out while they can, while others ride the wave and even buy into the dip with hopes of cashing in on the future.
Some are looking at this as a market correction rather than a crash. If so, then it could be assumed that this is a temporary downturn rather than a long-term bear market. Even if it is a market correction, the state of crypto could remain in this state for a couple of years, with worse still to come before getting better.
So, there is no doubt crypto is experiencing a downturn, and while it is significant, it has experienced lulls before. The crypto market experiences cycles whereby the price affects the interest, which spurs new ideas and finally, new projects and start-ups.
As cryptocurrencies are volatile and especially so in times of market turbulence, does the future look brighter, or after a decade of longevity could cryptocurrencies face a fall they can’t ever recover from?
This is reported in the 2022 State of Crypto Report by a16zcrypto, who has dubbed this the “price-innovation cycle,” which has guided the crypto market through its waves over the years. The report states that “the result is consistent long-term growth” which is encouraging for cryptocurrencies to ride the current waves of turbulence, but at the same time, new technologies are emerging amid pressures on traditional financial systems from these factors.
All forms of money management, from banking to payments, have experienced forced and innovation driven change over the past decade, with bank branches replaced by digital apps and travellers cheques with credit cards. Device app-based banking and payments from Apple and Google Pay to PayPal and SumUp make the choices available to consumers and businesses more flexible, versatile and cost effective.
Another significant trend has been the integration of BNPL (buy now pay later) services allowing consumers to spread the payments for goods over a period of time at checkout. Although this is attracting more scrutiny from financial regulators as some see this as an alternative to payday lending which eventually crashed as people using the facilities were borrowing more than they could afford.
With a focus on financial inclusivity more and more FinTech and PayTech companies are developing and delivering easier ways for the 2 billion unbanked population, those with limited or no access to a financial service such as a current/checking account or lending facility, to gain access to money and more.
Other technology players are also building clever applications to raise awareness of and allow consumers and businesses contribute to offsetting their carbon emissions to address climate change. This is also driving a shift to banks embedding this technology to allow offsets being linked to financial transaction trends, i.e., the more you spend on flights the more you should offset your carbon footprint.
With cryptocurrencies having a 10-year track record, mainly up and down, and the financial services industry evolving to serve customers more digitally, ease the friction points of making payments spanning borders, become less reliant on physical infrastructure such as card readers or payment terminals, and provide sustainable investing, can cryptocurrency play more of a role in every day ‘money’ management?
And if so, how can this be achieved without being impacted by the volatility of money markets and fiat currencies also affected by geo-political and regional fluctuations such as war, inflation, climate change impacts and government corruption?
With more and more utility companies, retailers, car companies, luxury brands and governments accepting cryptocurrency as a form of payment could crypto start to creep into our normal day-to-day methods of paying and not just be seen as an(other) investment class?
For example, customers of Revolut and other neo banks already have access to facilities via an app to buy cryptocurrency, missing out the crypto exchange, with education and information tips provided as part of the experience to promote sensible and safe investing.
Another approach to cryptocurrency, however, is growing in popularity around the world while showcasing a totally different face of blockchain payments. Central bank digital currencies, unlike Bitcoin and other first-generation crypto products, are centrally controlled by governments in the same way traditional currencies are. Despite this being the polar opposite of the idea behind decentralised, non-traceable Bitcoins, the two currency products can use the same blockchain technology. Several small countries have launched their central bank digital currencies, and several more populous nations are getting ready to jump aboard a different crypto hype train. Europe, and even the Ukraine at a time of conflict, are among some of the regions trialling this concept, whereas others, such as the UK are taking a more cautious approach and looking at the regulatory impacts and requirements before taking such steps.
So, in a time of volatility, and with a currency driven and impacted by volatility, it looks like the concepts of cryptocurrencies are being taken seriously by tech companies, governments, banks, retailers, payments providers and consumers as a way to invest, spend and transfer money. From the days of bartering, to bank notes and BitCoin, societies and governments have adapted to the changing circumstances around them, from stealing and fraud to currency crises and market crashes. But this time around, it feels like technology is leading the way to enable a digital currency to enable more access to financial services to more people more conveniently and cheaply. And one thing we can be assured of in between crises and the application of Moore’s Law (the principle that the speed and capability of computers can be expected to double every two years as a result of increases in the number of transistors a microchip can contain), technology has delivered consistently during these times to develop new and alternative ways of what we did before but quicker, faster, smarter and in some cases cheaper!
In conclusion, maybe the future for cryptocurrencies is bright, they need to ride the waves of volatility, but the advancements and innovations of technology will provide the momentum needed to keep the long term outlook one of adaptability and growth.
The views expressed in this article are those of the writer and do not form or constitute any form of financial advice or financial market predictions.
Antony Bream, Executive Contributor Brainz Magazine
Antony Bream, is a business advisor and executive coach working closely alongside founders, boards and their teams to help them and their businesses take the leap to their next level. With a passion for understanding the processes and psychology behind how companies sell their products and customers buy them, he formed Ribbit Consulting to bring that experience and knowledge to his customers to empower them to reach their full potential.
