Over the past decade, cryptocurrency markets have witnessed an unprecedented surge in value, reaching almost $2 trillion in total market capitalization. As of July 2023, Bitcoin alone was valued at over $579 billion in crypto markets. While this digital currency has gained immense popularity, its value remains highly volatile, fluctuating drastically from one day to another. This instability raises concerns about its practicality as a stable form of currency for day-to-day transactions.
Apart from its fluctuating value, Bitcoin’s speed and usability have also been questioned. The process of conducting transactions using Bitcoin can be slow and cumbersome, further adding to its practical limitations.
The taxation of cryptocurrencies by the IRS as financial assets or property for tax purposes has complicated matters. Capital gains from selling or trading cryptocurrencies are subject to taxation, depending on the duration of holding and usage of digital assets.
Cryptocurrencies offer friction-free international payments, benefiting importers and exporters conducting international trade. However, this increased flow of capital could lead to higher flows of capital and exchange rate volatility, posing challenges for small and developing economies in managing their domestic economic policies.
Despite the market risks associated with speculative assets, the cryptocurrency market has witnessed significant growth, with its total market capitalization surpassing $1.2 trillion.
In addition to removing single points of failure, facilitating easier fund transfers between parties, eliminating the need for third parties, and generating returns, remittances have also become more streamlined through cryptocurrencies.
The pseudonymous nature of cryptocurrency transactions also means they can be used fraudulently. They have become highly centralized, and participating in the network can be expensive. Additionally, off-chain security issues and extreme price volatility are notable concerns.
Cryptocurrencies rely on decentralized transfers secured through public and private keys, along with incentive systems like proof of work or proof of stake. While these features enable innovative applications like flash loans in decentralized finance, illicit activities can also flourish on the dark web, as in the case of the Dread Pirate Roberts drug marketplace.
The unpredictable surges and crashes in the value of cryptocurrencies, such as Bitcoin’s meteoric rise to nearly $65,000 and subsequent drop to just over $20,000, have fueled the debate about whether cryptocurrencies are a short-lived fad or a revolutionary force akin to the advent of the internet. The truth likely lies somewhere between these extremes.
