Since the introduction of Bitcoin in 2008-09, cryptocurrencies have gained enormous popularity, and today the total net worth of cryptocurrency assets is close to $1 trillion. This includes currencies such as BTC, Ethereum, Litecoin, Dogecoin, Cardano, Solana, and more. Currently, many governments around the world are thinking of investing in their own cryptocurrencies, leveraging blockchain technology to run them.
A market worth trillions of dollars is forming.
Over the years, over the past decade, cryptocurrencies have grown from a simple digital innovation to a nearly trillion-dollar market, giving them fierce competition from the existing global financial system. Today, Bitcoin (BTC) and other cryptocurrencies are considered legitimate investments and are used on par with traditional or fiat currencies to purchase goods and services online. It is mainly used to purchase digital real estate, software, drugs, etc. In fact, due to the lack of international regulations, cryptocurrencies are being misused by terrorist organizations, drug peddlers, and some rogue states.
Currently, some governments have legalized the use of cryptocurrency, while others have banned the use of all forms of cryptocurrency. In particular, the United States is considering introducing its own central bank digital currency to combat the widespread spread and boom of cryptocurrencies.
What is cryptocurrency?
It is a virtual currency in the form of coins exchanged on a decentralized computer network between buyers, sellers, and investors. It runs from Blockchain payment gateway You need a digital wallet and a cryptocurrency exchange to have a system in place and conduct any kind of transaction. Some of the most popular cryptocurrency exchanges, platforms, and cryptocurrency payment processors include Coinbase, CoinRemitter, and Biance. Cryptocurrency investors send funds between digital wallet addresses. Additionally, it is called blockchain technology because all transactions are recorded in ‘blocks’. Transactions are confirmed over the network. Cryptocurrency transactions are subject to appropriate privacy protections, as blockchain does not record users’ names or addresses, providing a degree of anonymity.
Bitcoin as a cryptocurrency
According to the latest statistics, the total market supply of Bitcoin is estimated at 21 million coins, but not all cryptocurrencies have this limit. The price of BTC and other cryptocurrencies is based on the overall supply and demand graph. However, the price of some cryptocurrencies is fixed because they are backed by assets, hence the name ‘stablecoin’. These coins have an exchange rate of $1 per coin, but some have been devalued due to rapid volatility in 2022. Today, two major cryptocurrencies, BTC & ETH, have skyrocketed in popularity along with their combined valuations. It is pegged at more than $1 trillion.
There are ‘significant’ fluctuations in the price of Bitcoin, which somewhat limits its effectiveness as a means of transaction. On the other hand, some Shopify stores and the WooCommerce giant accept Bitcoin payments, and many investors prefer to hold Bitcoin as a speculative asset rather than use it as a payment method to purchase digital assets such as virtual real estate. Some dynamic investors see Bitcoin (BTC) as a hedge against inflationary markets. This is because the supply is fixed, unlike foreign exchange and fiat currencies, which are regulated by central banks and whose supply can increase several times. In fact, El Salvador is the first country to make BTC a legal tender. Citizens can pay taxes and settle bad loans with Bitcoin.
The Role of Decentralized Finance – DeFi
With the emergence of cryptocurrency and blockchain technology, a new portfolio called ‘decentralized finance’, or DeFi business, has emerged. This particular financial sector strives to provide people with access to a variety of traditional financial services. Borrowing, lending, and online transactions are possible without the intervention of authorized institutions such as securities firms or central banks, which usually charge fees per transaction. With most DeFi apps being built on blockchain technology, it is experiencing a surge in popularity among cryptocurrency investors investing billions of dollars.
Lack of regulation and volatility
As the number of cryptocurrency and DeFi-based companies continues to grow, billions of dollars worth of transactions are taking place in an unregulated manner, increasing the risk of tax evasion, fraud, misconduct, and cybersecurity. Moreover, if cryptocurrencies become a major source of global payments, they could significantly disrupt and reduce the ability of central banks to formulate monetary policies to control the money supply, especially in developing and emerging countries. This led to the destruction of several major cryptocurrencies as borrowers were unable to repay their lenders, most of whom were cryptocurrency companies, due to high levels of volatility and lack of strong regulatory policies. The foreign exchange market is much less volatile than the cryptocurrency market.
Forex and Cryptocurrency
There is a lot of volatility in the cryptocurrency market, but not in the foreign exchange market. Forex or fiat currency is fully regulated by central banks and therefore offers huge profit potential if you invest larger amounts. Forex trading of fiat currencies such as USD, GBP, EUR, CAD, AUD, JPY, etc. is carried out by banks, which are brokers. Cryptocurrency trading can be done through two basic platforms namely; Centralized exchange and decentralized exchange. The most popular forex pairs are USD/GBP, USD/EUR, and USD/JPY. Likewise, central bank digital currencies (CBDCs) introduced by the US federal government operate in a similar way to cryptocurrencies. A lot of people are investing in them.
final thoughts
Advances in computer technology and high-speed Internet connections have greatly improved accessibility to various areas of trading. It is important to understand that due to the immense popularity of cryptocurrencies, many forex traders have switched to cryptocurrency trading in the past few years. However, there are still many ‘old school’ investors who prefer forex and fiat trading. This is because it offers better stability and lower volatility than cryptocurrency trading. The choice is always yours.