In this article, we shall analyse the drivers behind the rise in cryptocurrencies’ value and market capitalization and start envisioning future evolutions, focusing notably on Bitcoin and blockchain technology. Previously, we explained what is a cryptocurrency and highlighted the possible revolutionary impact of blockchain, the technology underlying the majority of cryptocurrencies. We, meanwhile described the main features of the three most capitalized cryptocurrencies: Bitcoin, Ethereum and Ripple.

Here, after having addressed the drivers behind Bitcoin’s rise, we shall highlight the challenges that Bitcoin and other cryptocurrencies will have to face in the upcoming months. Moreover, we shall also try to understand if the traditional currencies’ stance on global markets could be hampered by a dramatic surge in the daily basis use of independent (i.e. not controlled by a central bank) cryptocurrencies like Bitcoin. In conclusion, we shall assess the perspective of the blockchain technology to be used in sectors other than cryptocurrencies.

Executive Summary

As we continue to analyse the different challenges that could hinder the supremacy of the US Dollar over the global monetary system, here we focus on the perspectives that Bitcoin seems to have in this regard. Could cryptocurrencies ever replace traditional, centralized, public authority-regulated currencies? In this article we give a first answer. We also focus on blockchain, the technology behind the majority of cryptocurrencies, which could be the true revolutionary breakthrough.

Mistrust in governments, the ICO (Initial Coin Offering) boom, and speculative activities are the main reasons behind Bitcoin’s rise. We highlight that Bitcoin still has no meaningful use as unit of account or means of exchange and that it is a very poor store of value. Furthermore, Bitcoin is likely to suffer from governmental regulation, also because it is widely used for illicit purposes. Nonetheless, the cryptocurrency craze is likely here to stay as companies, Telegram for example, launch their own digital tokens. Yet, cryptocurrencies are not likely to replace traditional currencies, at least in the short-term.

Blockchain, for its part, has found concrete applications in a wide variety of industries. Companies operating in the financial industry, in energy and in commodities trading are currently using this technology which promises to be a game-changer, even if Bitcoin will eventually fail as a currency.

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These examples of blockchain’s wide applicability may therefore mean that Bitcoin may be nothing more than “a distraction from the true significance of the blockchain” technology (Steven Johnson, ibid.).

About the author:  Leonardo Frisani (MA Paris) focuses currently on challenges to the US Dollar supremacy. Beyond that, his specialization is in international security, and his main interests are in geopolitics, macroeconomics, climate change, international energy and history.

Featured image: The DigitalArtist, CC0 Creative Commons, via Pixabay

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