Do cryptocurrencies have a future?

One in five  bitcoins in the world belongs to users who forgot their cryptocurrency wallet passwords .


In 2023 we are faced with questions about cryptocurrencies that have long been unanswered. Possibly since they were born but since things were going well it wasn’t important to answer them. On the other hand, last year its price was hit by inflation and two crypto investment giants fell : the Terra platform and, at the end of the year, FTX .

Perhaps the most relevant question is: do cryptocurrencies really have a future?

Other important questions would be: is it an improvable model? Is it better to wait for central banks to launch their own cryptocurrencies before investing in them? What lessons does their performance in the markets teach investors?

A short and simple explanation

Cryptocurrencies are virtual currencies or assets. In other words, they do not have physical support, nor do they depend on or are supported by any country or institution , but they can be used as a means of exchange or as an investment.

They are based on blockchain technology or blockchain , which is defined as : “A ledger of digital and distributed transactions, with identical copies maintained in multiple computer systems controlled by different entities.”

The fact that the information is distributed in a large number of computer systems controlled by different entities shields the chain of blocks since, with current technology, it is practically impossible to alter the same information in all the computer systems in which it is distributed.

Having made these clarifications, we are now going to answer our questions.

Do cryptocurrencies have a future?

The guarantee of a traditional currency, for example the euro or the dollar, is in the credibility offered by the country or the institution behind it.

The problem with cryptocurrencies (bitcoin, ethereum and a long etcetera) is that the only guarantee is the trust in them. They have no support other than supply and demand expectations. Behind it there is only a complex computer system, based on blockchain technology . Nothing else. There is no other guarantee.

For example, if someone loses the access codes to their bank, they can go to their branch and, providing their documentation, recover it. But if what you lose are the access keys to your bitcoins, you have lost the money : there is no place to go to claim.

According to a recent study , 20% of bitcoins are from users who have lost their passwords.

So, as a transaction system, can it work? Yes, as long as the blockchain technology does not break or stop working properly.

However, as an investment, you must be fully aware that it is a speculative product, whose value is not backed by any asset, country or institution. In most cryptocurrencies there is nothing behind it, except the value that the market wants to give it. And today that is largely volatile and speculative.

If the price of a cryptocurrency rises, it is because there is more confidence in that cryptocurrency and it is thought that it will be used to a greater extent in the future. So, as a financial product, do cryptocurrencies have a future? Without real support , people will stop accepting them to the extent that they stop seeing their usefulness.

Cryptocurrencies are designed for peer-to-peer transactions, operations between equals in which financial institutions do not have the upper hand and it is difficult for them to control them.

This characteristic makes them very attractive for those transactions in which anonymity is desired (whether due to criminal acts or for other reasons).

An improvable model?

To the question of whether cryptocurrencies are a model that could be improved, the answer is no. They fulfill the functions of a currency (investment, savings, exchange), they have the efficiency of the digital and, in addition, they maintain the anonymity of the user, like cash.

Better backed cryptocurrencies?

Regarding the backed cryptocurrencies, the truth is that we already have the currencies of the central banks. What could a cryptocurrency controlled by a central bank be used for?

A cryptocurrency controlled by a central bank would serve the same purpose as traditional currency, which is already controlled by that central bank.

Instead, official cryptocurrencies would be very useful for economic authorities due to the enormous efficiency and control over transactions. Also, if everything went through them, they could end the underground economy.

But the user would totally lose anonymity. The central banks would know where he has spent every penny of his money. As in the case of the digital yuan that the Chinese central bank is implementing .

And what lessons remain for investors?

When there is nothing of value behind it, in the end it is very possible that the bubble will burst. It already happened with the stamps and it will happen with what is overvalued in an exaggerated way.

We have seen the rise and fall of cryptocurrencies, but sooner or later they will reach their plateau of profitability and find their place in an increasingly complex and digital system.

If you invest in any cryptocurrency today, do so with full knowledge of the facts, knowing that there is nothing behind it, except pure speculation and expectations.

This advice is also useful for those who are investing speculatively in the fields of the metaverse .The Conversation

Jorge Pelegrín Borondo , Professor of the area of ​​Marketing and Market Research, University of La Rioja