ANN ARBOR – Going back to the origins of bitcoin, cryptocurrency has now been around for more than a decade. It’s still “new” in the grand scheme of things, and to many it’s still somewhat of an unknown. But cryptocurrency has also become more normal and better understood. At the very least, it’s now clear that this new form of digital asset is here to stay, and will serve numerous purposes in the financial world moving forward.
At the same time though, cryptocurrency is going to continue to evolve. The ways we use it, the ways we invest in it, and the different things it can accomplish are going to keep changing and expanding in the years to come.
The following are some of our specific predictions for what we might see.
The “Undo” Button for Transactions
Cryptocurrency is basically designed to make transactions final and concrete. Once an exchange is made over a blockchain, it cannot be disrupted or changed. This, overall, is a good thing. It gives crypto users confidence that their transactions will be carried out as they intend, and that there can’t be any foul play after the fact. However, it can also be a problem. It’s not unheard of for people to set exchanges in motion without meaning to (all it takes is the press of a button in some cases), and this basically results in money lost.
As we remarked on in July though, there is actually a blockchain startup that recently claimed to have invented an “undo” button for crypto transactions. We don’t know yet how reliably it works or how widely it will be adopted, but this general idea is one we should expect to hear more about. It’s likely that there will be more and more focus on making it possible for crypto users to recover from small errors, at least if they seek to do so quickly.
New Investment Methods
Most people today think of crypto investment in simple terms: buying cryptocurrency, holding onto it, and eventually selling it when the price is favorable. In recent years though, new investment methods have emerged that are helping people buy into cryptocurrency in different ways.
One such method is crypto trading through CFDs. These are special contracts designed to convey a trader’s expectations for any given asset. Through them, traders can make money if assets move as expected, without having to purchase and store the cryptocurrency in question. Somewhat similar is crypto futures trading, which also appears to be catching on (albeit gradually). This is a form of investment through which a trader agrees in advance to purchase cryptocurrency at an established price, on a specific date. Thus, if the actual value of the currency has gone up by the time that date arrives, the trader can effectively acquire it more affordably.
Methods like these are going to expand the investment playing field for cryptocurrency, and give people more ways to buy in.
Normalized Debit Cards
One of the major problems cryptocurrency has faced is everyday use. Even those who are interested in cryptocurrency, or who have invested in it, often aren’t comfortable using it to buy goods. Additionally, a vast majority of stores around the world still remain resistant to the idea of direct cryptocurrency acceptance.
Debit cards are beginning to solve this problem though. Last year, Visa and Coinbase announced a cryptocurrency debit card that works seamlessly to bridge the gap between crypto users and store owners. Basically, users can load cryptocurrency onto these cards and then use the cards to make purchases at any ordinary store. At the time of the transaction, Coinbase automatically converts a portion of the cryptocurrency to whatever fiat currency is favored by the store. In the end, the user spends cryptocurrency, but the store receives ordinary currency.
The widespread normalization of these cards could significantly increase the volume of crypto transactions around the world.
Lower Fees for Financial Transactions
This change likely won’t be as relevant to the average consumer. But we’re beginning to see real potential for cryptocurrencies to transform how banks manage money in a way that should reduce fees for all involved.
The main name in this regard is Ripple, an up-and-coming cryptocurrency that can cut transaction costs for banks by a reported 40-70% on average. It does this by serving as an intermediary for exchanges between currencies. Rather than having to make expensive conversions (usually to the USD) to a fiat currency, two parties dealing in different currencies can now make more direct transactions, converted to and from Ripple’s XRP token on either side. It’s both faster and more affordable, and it if becomes a more widespread practice it could make banking a cheaper practice.
Undoubtedly there will be additional changes in the cryptocurrency landscape that we haven’t predicted or analyzed here. But the points made here speak to fairly significant evolution that will continue to change how we think about this modern asset class.