The crypto market has not been kind to “investors” lately. The market has been near free-fall, and within the first quarter of the year, we’ve seen so many things going south about cryptocurrencies, and it seems almost all the promises that BitCoin and cryptocurrencies promised were a lie. So what are these promises that cryptocurrencies have failed to deliver?
Cryptocurrencies are inflation resistant
The crypto market, in general, has been pushing the ideology that BitCoin and other cryptocurrencies are immune to inflation. And what good time to test this hypothesis when the US inflation is at a 40-year high?
One of the reasons for the cryptocurrency near-nose dive is that US inflation is at an all-time high. People are selling high-risk assets such as cryptocurrencies and stocks in favor of classical assets with little risks attached, such as gold.
The reason that crypto is currently not immune to inflation is that people are still not considering them as currencies but instead considering them as an asset, in fact, a very risky, high volatile assets..
Even though cryptocurrencies have the word ‘currency’ at their end, I don’t think people will consider crypto as a real currency anytime soon. How many of you have purchased anything using cryptocurrency? And instead of holding on to them or day-trading them as you do with stocks?
Both the fluctuations of the Apple stock prices and the price of BitCoin follow a similar trend.
Stable coins are anything but stable
Since BitCoin and other cryptocurrencies are volatile, people wanted to back these coins with real-world currencies or assets such as the US dollar. Some of these stable coins are backed by US dollar assets, while some are algorithmic stable coins. This means that there are two cryptocurrencies used to maintain value at a steady rate by the supply and demand to the investors and use an algorithm to maintain their value at a constant state.
Even though this algorithmic stable coin value is pegged to a real-world currency, they are not backed by real-world assets.
Stable coins are a great way to make cross-border transactions without involving a third party. And you don’t have to worry about the value appreciating or depreciating after the transaction. As it happens with Bitcoin and other non-stable cryptocurrencies, the amount you paid/sent can be different by the time the recipient receives it.
However, the recent crash of the Terra and Luna network, and how USDT came to a near collapsing a few weeks ago shows that these stable coins are anything but stable. And are like a house of cards waiting to collapse at any given time.
No algorithmic stable coin has been able to succeed up to now and according to some there is no way for a algorithmic stable coin to maintain its value longterm because of the design.
Sometimes all it takes is one leaked document, one shake in the market to create a domino effect on all the cryptocurrencies and for the weaker ones to collapse.
No one can regulate cryptocurrencies
This idea that a central entity can’t regulate cryptocurrencies is pushed around by crypto enthusiasts. However, governments are trying to bring regulations into cryptocurrencies and stable coins.
China has banned mining cryptocurrencies. Congress is looking forward to bringing a bill to regulate stable coins and cryptocurrencies.
SEC wants cryptocurrency exchanges and DAOs to be registered, to protect investors. Before you know it, the crypto market is regulated just like any other asset. I’m sure we will see how regulating crypto will play out in the next couple of years.
Smart contracts are just as safe as a normal contract
In the term “smart contract”, the word “contract” implies or assures people that they are legally binding contracts. But, they are anything but legally binding.
Bugs and exploits in these smart contacts have yielded millions of dollars worth of crypto assets getting stolen, and there is nothing one can do about it. In 2021 scams, hacks, and rug pulls have stolen roughly 14 billion from users.
These are some of the points that I can think of when it comes to the main promises cryptocurrencies have brought and failed to deliver. But does that mean they are worthless?
Where and how crypto currencies might succeed?
For cryptocurrencies to succeed, they need to gain the trust of the majority outside of the tech/crypto communities. Businesses need to trust cryptocurrencies. There should be a way to easily and quickly transfer assets from one person to another. And everyone has to accept and use cryptocurrencies as true currency instead of an asset like you trade in the stock market.
There should be a way to prevent rug pulls, or a way for the affected to get their lost assets back. Otherwise, people will be resistant to adopting cryptocurrencies and using them.
If there is enough trust, it will be easy to send money from one region to another without any restrictions and regulations.
For example, in Sri Lanka, there is no way for someone to accept payments or send money through PayPal or Stripe. However, people will be able to send money through the blockchain and bypass these restrictions if more people begin to trust crypto. And the crypto community should work to build this trust.
Web 3 and the decentralized web are other great frontiers for cryptocurrencies. Cryptocurrencies and tokens can be the keys to accessing a decentralized web and web3 applications. And the decentralized web is a great workaround when it comes to censorship and central silos.
These are just a few use cases, but there are so many, specially the underlying blockchain technology has its use cases too.
So what’s your thought on cryptocurrencies? I’m not downright against cryptocurrencies and have an open mind about them as I feel there are possible use cases for them in real life.