Although cryptocurrency has been around for 15 years, it is still in its infancy when it comes to its potential. That is why financiers who have invested money into building up their crypto wallets will be interested to find out what the future has in store for virtual currency.
Cryptocurrency’s current role
Cryptocurrency has a global market value of $2.58 trillion (£2 trillion), despite less than seven per cent of the world owning the tender.
It is popular among investors for its lack of regulation and the decentralised nature of the currency. However, this also means it can be volatile, offering the risk of loss as well as huge potential gains.
Being entirely digitalised, there are also cybersecurity risks involved in crypto, which is why this is one area that the industry will look to improve on over the next few years.
Technical advancements
There will be a greater push to make security threats, phishing attacks, and hacking attempts things of the past, as this will attract more investors who might currently be concerned about the safety of their assets.
The role of artificial intelligence (AI) in the crypto world will also grow, which will improve cyber security and make fraudulent activity more difficult. This will boost investor confidence, encouraging more people to use the finance and helping to bring it to more institutions.
AI will also help with crypto trading, making it faster and more efficient.
Technical developments will also help crypto to improve its green credentials and use less fuel, as it currently puts a huge demand on electricity.
There are already environmentally friendly reasons to swap to crypto, with some companies using renewable energy in cryptocurrencies mining or attempting to achieve a net-zero emissions target by using carbon credits. Other currencies have cut down on their energy use through technological updates, including Ethereum.
Greater regulatory intervention
Over the next few years, there is likely to be more regulatory intervention, which will appeal to some investors who are hoping for greater protection, legitimacy and security.
While the lack of regulation is attractive to some investors, it can deter lots from entering the market, resulting in a lower adoption rate of crypto than it has the potential to achieve.
If widespread adoption is to occur, there needs to be more regulation. It could also open up new opportunities for investors, including crypto exchange-traded funds (ETFs).
Decentralised Finance (DeFi) growth
Many crypto investors like the virtual currency for its Decentralised Finance (DeFi) aspect, which removes the need for third parties when it comes to financial transactions. Therefore, investors can buy, sell and swap without centralised institutions, such as banks or brokerage firms.
DeFi has the potential to expand over the next few years, thanks to its automated applications that are set within its established protocols. Therefore, investors can be confident their smart contracts will not be tampered with or require a central authority to oversee them.
Not only is this appealing to those who have a distrust of financial institutions, but it also simplifies transactions, allowing them to take place without having to pay extortionate fees or go through lots of red tape, and provides greater access to services.
Institutional adoption
Even though cryptocurrency has the potential to be used by millions of people all over the world, this can only occur with institutional adoption.
Therefore, more companies need to start accepting cryptocurrencies as a tender. Currently, only 0.001 per cent of businesses in the world allow purchases with crypto, which means investors cannot spend their profits without having to exchange them back to fiat finance first.
This can cost them dearly in exchange rates, as well as time and effort, whereas trading directly in crypto would be far simpler and easier.
Several businesses have already started to let people use crypto, including Tesla, PayPal and Microsoft, and while these are retail giants, there needs to be more businesses that are willing to accept the virtual currency to enable it to expand.
There will also be a growth in cryptocurrency cards, which enable the 300 million crypto users to spend their earnings. Even if businesses do not accept the tender, investors can still use their cards or mobile app to pay. This is because the company will receive their money in their fiat currency, while the spender uses their crypto.
This helps to bridge the gap until there is greater adoption of cryptocurrency, saving investors on exchange rates and enabling them to make practical use of their earnings.