Cryptocurrencies have been around for over a decade now, but the buzz around them is still uncertain. With some believing they could be the next big thing in finance and others thinking the risks and volatility are too high to warrant standard use, it’s still very unclear as to whether they could become a regular form of currency in the future. From emergency bad credit loans to everyday spending, the UK is in need of a bit of help, but could cryptocurrencies be the answer? We’re taking a deeper look.
What Are Cryptocurrencies?
For those that don’t already know what cryptocurrencies are, the concept can initially be a little confusing. At their base, however, cryptocurrencies are simply digital assets or currencies that can be exchanged in a similar way to standard fiat currencies, with one key difference – there is no central authority controlling the distribution and authentication of these assets. There are no banks or financial institutions handling transactions and instead, each payment or transfer is authenticated using the other users on the blockchain network.
This is done by enabling every person the network to see all transactions. These are protected with hashes, ensuring anonymity across the board but still enables that all transactions are valid and that that double spending occurs.
What Could The Risks Be?
The risks associated with cryptocurrency are plentiful but can arguably be handled with the right solutions. However, the first step to understanding the solutions is to truly understand the risks. They include:
In order to create mass adoption, you need to encourage scalability but for cryptocurrencies, this can be a problem. For most cryptocurrencies, there is a market cap and for Bitcoin, in particular, these coins need to first be mined. What’s more, mass use of cryptocurrencies can reduce the effectiveness of the currency, including delayed transactions, higher fees and, of course, general public frustration. This kind of scalability issues tend to lead to arguments and panic buying, which can cause increased volatility across the board.
Online security issues can be seen across the entire finance industry and while cryptocurrencies have been designed to reduce these issues considerably, there is still a security concern overall. From scams and schemes to tricks designed entirely to take your coins (which then can’t be returned), the potential for these kinds of risks will only grow with mass adoption. Decentralised exchanges can reduce the risks, but the potential for an exchange strong enough to handle the entirety of the UK’s economy isn’t as easy of a task as it may seem.
Volatility is a widely known issue with cryptocurrencies and while a level of rise and fall in currencies is how traders operate, excessive insecurity can cause more issues than it solves. The potential risk of lost value is often enough to turn most merchants away, which can reduce the potential for adoption across the board. For this reason, it’s unlikely that the UK will adopt cryptocurrency anytime soon, but with new investments being made into blockchain technology, only time will tell.
While cryptocurrencies can certainly drum up a debate, particularly when putting the risks up against the benefits, it’s difficult to determine whether any coin, whether that’s Bitcoin, Litecoin, Ethereum or another alternative, could stabilise enough to encourage wider adoption. Despite talk of investments of money and time in the future, the UK government hasn’t reached a point of considering cryptocurrencies on a wider scale, but the future could change that considerably, so watch this space.