Cryptocurrencies like Etherum or Bitcoin were hyped in 2017but experience lot of criticism today. Why is that? As often observed in markets, innovative ideas, especially when being revolutionary, experience large booms in a very short time. Just think about the Dotcom Bubble in the 1990s. During that time, basically every company´s stock price that somehow related to the Internet went through the roof. In the end, it was even enough to conduct an IPO when only the name related to the world-wide-web.
But even though the Internet remained, markets ran into a crisis. With cryptocurrencies, one could observe a similar pattern. Sure, the downturn observed so far is not as excessive as it was in during the Dotcom crisis. Still, as cryptocurrencies are uncharted territory for governments and often have beenabused for illegal actions, there is a need for regulation. In early 2018, several governments started actions to regulate or even tried to ban cryptocurrencies temporarily.
But why is it important that digital money remains? From an economics perspective there are several advantages connected to cryptocurrencies.
Blockchain technology prevents fraud from the beginning and essentially prevents financial crime. Fake money, terrorist financing and money laundering are one of the biggest challenges today. This is also why new Anti-money-laundering (AML) and Counter-terrorist-financing (CTF) policies were issued by the institutions like ESMA, and KYC processes are implemented at any financial institution. The blockchain technology prevents these problems as it increases transparency, makes the money traceable and unforgeable.
Additionally, in times of globalization, currencies that are accepted worldwide open doors to markets. New participants can enter the global market no matter the value of the currency in their home country. This is because exchange is possible at any value of the fiat currency as tokens can be divided to any digit. To further advance globalization and improve market efficiency, currencies that are globally accepted are therefore key to open the market for any possible player.
One cannot predict the future. Which currency will disappear, and which will be established is uncertain. The conclusion is that cryptocurrencies do have huge potential and it is very likely that they will remain in the future.