The Journey of the Digital Currency

The Rise of Cryptocurrency

Cryptocurrency is one of the most innovative uses of online technology, completely bypassing traditional national currencies. For more on cryptocurrency origins, rise, and recent record high values, read on.

The Birth of Cryptocurrency

Between the internet, smartphones, and broadband, recent technological innovations have seen many aspects of life, from recreation to business, dramatically change in just a decade or two. One of the most unexpected but increasingly significant financial changes has been the rise of cryptocurrency and Bitcoin’s journey into something that can be used in day to day life, from buying shopping to playing online casino games. It’s even reached the stage that some casinos specifically offer promotions only to those using the cryptocurrency.

It didn’t take long after the internet became widespread for financial transactions to become commonplace online. This first involved real-world institutions, such as banks and credit cards, and then electronic wallets like PayPal came along (still using traditional currencies). In many ways, cryptocurrency is the logical next step in the evolution of online financial dealings, moving not just the transactions onto the internet but changing the very nature of the currency away from nation-states and replacing it with something entirely different.

The use of blockchain technology to create money that doesn’t exist in the real sense and is not printed by a national government is something that would’ve been science fiction just a couple of decades ago. However, the value and utility of cryptocurrencies is on a continual upward curve. Bitcoin was the first of these decentralized currencies and was created in 2009. Today, it can be earned in a variety of ways and remains the leader of the cryptocurrency pack.

Bitcoin goes from Strength to Strength

One of the inherent characteristics of cryptocurrency, which can be considered a good or bad thing depends on one’s perspective, is the volatility of the system. All currencies are subject to exchange rate variations (the British pound had two significant falls following the 2016 EU referendum result, prior to recovering in more recent times) but cryptocurrencies are significantly more prone to both rapid declines and sharp rises. In 2021, from the start of the calendar year to mid-March, the value of Bitcoin more than doubled, increasing by more than 100% to exceed $60,000 (£43,000).

The increasing power of Bitcoin and other cryptocurrencies isn’t only a function of price, however, but reflective of increasing accessibility. Tesla’s Elon Musk is one big name backer, and major financial institutions from credit card giants Visa and Mastercard to leading e-wallet PayPal have come onboard.

It’s also well-suited to pandemic times, being online and electronic in form, and this has also seen the value of other cryptocurrencies (Litecoin, Ethereum, and so forth) increase as well. Traditionally, troubled economic times have seen gold prices rise, and while this is likely to continue cryptocurrencies present another potential avenue for investors concerned about rising inflation.

Alternative Cryptocurrencies

Bitcoin is not, however, the only major cryptocurrency in the world. Ethereum is a popular alternative and has grown to become the second-biggest cryptocurrency due to its capacity for Smart Contracts and Decentralized Applications (DApps).

Litecoin was founded in 2011, and makes use of open-source global payments to make it impervious to control from external sources. In January 2021, it was estimated to be worth around $10bn, making it one of the largest cryptocurrencies.

Tether is a little bit different to other cryptocurrencies. In a bid to avoid the natural volatility that affects almost all others, Tether lives up to its name by tying its price to the US dollar. This enhanced stability has allowed it to become the third largest cryptocurrency.

Can Ethereum Challenge Bitcoin?

Bitcoin is undoubtedly top dog on the cryptocurrency marketplace, but this may or may not last into the future. Ethereum is another major cryptocurrency, and one which seeks to challenge Bitcoin’s supremacy through a radical new innovation.

In a controversial move, the change will involve ether tokens being burnt (destroyed), reducing the overall ether supply. Bitcoin, by contrast, has a fixed supply of tokens (it can never exceed 21 million). High demand for Ethereum could actually see the number of ether tokens decline overall. Unsurprisingly, not everyone is convinced this is a good move (although there is currently more support than opposition). Time will tell whether this significant shift in policy will topple Bitcoin as the crypto king, or end up being Ethereum shooting itself in the foot.

The $10bn Meme Joke

We live in strange times, and perhaps few things are more surreal than Dogecoin. It was established in 2013 as a clone of Bitcoin, as a bit of a joke (as described by its founder). But thanks to support from the new wave of Youtube celebrities, rock stars, and the occasional major finance investor, the meme-based cryptocurrency has a present value exceeding $10bn.

It’s also worth remembering that, as the GameStop investment story showed us, modern tech innovations, popular movements, and the financial world can interact in sometimes surprising ways that old school investors might find difficult to grapple with.

From its earliest days, Bitcoin has been the dominant force in the world of cryptocurrencies, but it remains to be seen whether the crown will pass to Ethereum or some other system. What seems certain is that cryptocurrency is here to stay, and is only going to grow in the future.