Understanding the various types of assets and currencies circulating within the consumer marketplace can be tricky, especially as an increasing amount of business is conducted digitally. Cryptocurrency is one such asset category that can be difficult to navigate, but it’s a form of currency that has risen to prominence in public discussion over the last decade. Let’s examine what cryptocurrency is, how it compares to more tangible asset categories like precious metals, and what the future may look like for both in terms of their consumer use and market success.
What Is Cryptocurrency?
For those who may be unfamiliar with the concept, cryptocurrency is a type of digital asset that uses encryptions to enable secure financial transactions and fund transfers. Cryptocurrencies (or “cryptos” for short) are decentralized, meaning that they operate outside of a central banking system. Instead, cryptos use peer-to-peer technology known as “blockchain” as a ledger to digitally record transactional data.
Arguably the most famous example of cryptocurrency is Bitcoin, which first became available to the public in 2009. Since its creation and rise to popularity, there have been thousands of other cryptocurrencies (or “altcoins”) that have flooded the digital landscape, all of which can be used for any digital transactions that recognize and accept such cryptos as valid currency.
How Do Cryptos Differ From Precious Metals?
Those who support cryptocurrencies as “the currency of the future” cite its decentralization from banking institutions and the security of blockchain technology as reasons for its importance and potential for making a positive market impact. However, cryptocurrencies have a tendency to experience high levels of market volatility. Since cryptos’ credibility and the legitimacy of their value still come into question for many hesitant consumers, the price swings they encounter can at times be extreme.
Precious metals, on the other hand, are a type of asset that has retained value over the long-term. In times of economic uncertainty and market instability, gold and other metals tend to be recognized as a helpful resource for potentially safeguarding wealth.
What to Expect In The Future
While some argue that cryptocurrency will eventually overshadow the market significance of precious metals, many others believe that metals like gold will continue to maintain their standing as valued assets.
It’s also possible that cryptos and precious metals will grow in tandem as they eventually begin to join forces with greater frequency. Stablecoins, or cryptocurrencies backed by more stable types of underlying assets, are becoming an increasingly common way for crypto developers to combat the volatility of the market. Precious metals like gold have already started to serve as reserve assets behind some stablecoins (Tether Gold, for example), so perhaps this collaboration between the two asset categories will prove to be a successful avenue forward in crypto enthusiasts’ quest to garner public support for cryptocurrency as a legitimate and dependable form of tender.
Whatever the future holds for cryptocurrency, it will be fascinating to observe how it continues to interact with precious metals on the market and whether a balance can ultimately be struck between the two.