The cryptocurrency market is in the midst of a boom phase that has the market in an extreme state of fluctuation as there are so many different cryptocurrencies competing for dominance despite the fact that only a small handful of these are seeing any real type of adoption rate.
This fierce competition makes it difficult to determine what the future holds with any significant rate of certainty. However, there are some things that can be intuited by experts based on trends that are currently emerging.
When it first appeared in 2009, Bitcoin’s main benefit was the fact that it was completely decentralized which meant all of its transactions took place anonymously.
Those in the know instantly started taking advantage of this fact in order to do all manner of illegal things on the darknet, primarily via the Silk Road marketplace.
Now that cryptocurrency is starting to become more mainstream, govern- mental and regulatory agencies around the world, including the Securities and Exchange Commission, the Federal Bureau of Investigations, the Department of Homeland Security and the Financial Crimes Enforcement Network, in the U.S. alone, are all giving it much more attention.
This increasing level of scrutiny began ramping up in 2013 when the Financial Crimes Enforcement Network first began issuing rulings that declared cryptocurrency exchanges were actually money service businesses which meant they had to follow government regulations.
The Department of Homeland Security soon followed up on this ruling by freezing the accounts of the biggest Bitcoin exchange the world had seen at that time, called Mt. Gox, most of which were held by Wells Fargo, due to concerns related to money laundering.
This directly led to an April 2017 ruling by the Securities and Exchange Commission to deny an application by Bitcoin to open an official cryptocurrency exchange trade fund, a move that caused a noticeable decrease in the cryptocurrency’s price, though not for long.
This denial of the application is currently under review in the summer of 2017. This has left cryptocurrency in a bit of an odd situation as their increasing popularity has led them to additional levels of governmental scrutiny and required regulation which directly goes against the reasons they were created in the first place.
Additionally, while the number of regular users is growing every day, it is still a small portion of the numbers that will ultimately be needed in order for cryptocurrency to reach a mass saturation point.
If these issues have not been solved by the time this level of acceptance is reached, it is unlikely that they ever will.
In order for a cryptocurrency to reach a true level of mainstream status and become a part of the incumbent financial system, it is going to need to be able to stay true to its original purpose and also remain complex enough that its overall level of security remains at or above the current level of security protocols.
On the other hand, it would need to become easy enough for the average person to understand.
It would also need to be decentralized enough that it can still be recognized as adjacent to its original form while still having checks in place to ensure that unsavory activities like tax evasion and money laundering can’t proceed unchecked.
This means that the cryptocurrencies of the future might be more an amalgamation of its current form and the more traditional types of fiat currencies.
US: While the United States is currently actively looking into ways to ensure that Bitcoins aren’t being used as a means to launder money nor as a way to fund illegal activity, analysts who are in the know also say that the federal government is currently working out plans for issuing its own form of cryptocurrency as well to more effectively cut the problems off at the source and not have to deal with wrangling an uncooperative technology in the first place.
This idea, which is being referred to unofficially as Fedcoin, posits that the Federal Reserve, as a national bank, could create a unique type of cryptocurrency with relative ease. All that it would have to do is to create its own blockchain and then generate the required genesis block.
Fedcoins could then be easily exchanged for actual dollars at a rate of 1 to 1, at least at first. The only real difference between Fedcoin and other cryptocurrencies currently in existence would be in the fact that a single user, namely the federal government, would then be able to create new blocks at will or destroy those that it had reason to believe were being used to finance illegal activities.
This could be done by simply forking the protocol of Bitcoin, or more likely Ethereum, and then adjust the reward for mining blocks based on its own needs. This would lead to a type of cryptocurrency that would be both decentralized when it came to the individual transaction and centralized when it came to limiting supply and monitoring those previously anonymous transactions.
While this might seem like something of a conspiracy theory, the fact of the matter is that the authorities of the Federal Reserve met with Bitcoin authorities in a closed-door meeting in the fall of 2016.
Janet Yellen, the Chair of the Federal Reserve, oversaw the conference herself which also included banking heavyweights from the World Bank, the Bank for International Settlements, the International Monetary Fund and more.
Officially, the focus of the meeting was on utilizing blockchain as a means of improving the efficacy of intra-banking transfers but insiders say that issuing a federal cryptocurrency was also a topic that was discussed at length.
The CEO of the company Chain, a blockchain-based company, even delivered a speech with the title “Why Central Banks Will Issue Digital Currencies” during which he urged governments to take control of cryptocurrencies themselves.
One of the most pressing arguments for Fedcoin seems to be the Federal Re- serve’s desire to stabilize cryptocurrency as a whole by connecting it directly to physical money.
This link would not need to be voluntary either as the new Fedcoin would likely be optional at first but eventually, it would be harder and harder to find physical money in use anywhere.
Russia: Russia experienced a serious change of heart when it comes to cryp- tocurrencies in 2017. They announced that cryptocurrency use was legalized after a statement in 2016 indicated that those who used the digital currency could face jail time.
The reason behind this abrupt 180 seems to stem from Russia’s currently ongoing problem with corruption in its banking sector. Since 2014, the Russian economy has been under extreme strain due to a decrease in oil prices combined with foreign sanctions that have extremely curtailed foreign investment.
This, in turn, has led to heightened costs when it comes to accessing money which has led to a decline in the banking sector. This downturn has come during a serious push by the Russian Central Bank to combat corruption at all levels amidst fears that many banks have been removing capital from the country via complex money-laundering schemes.
As of summer 2017, more than one hundred banks have been closed in the past three years with nearly that many being expected to close by 2019. This has been a serious financial drain on the country to the tune of more than $50 billion so far.
This process has also brought to light concerns about liquidity for the country as a whole and the feeling among analysts is that the Central Bank needs to tread carefully, or risk provoking a crisis of epic magnitude; thus, the change in cryptocurrency policy.