This time last year, cryptocurrencies had exploded into the public consciousness. There was excited chatter over the turkey and cranberry sauce about bitcoin’s meteoric rise, while mainstream media started carrying adverts extolling the virtues of digital currencies.
A year is a long time in technology, and as Christmas approaches once again, the picture looks decidedly less rosy. Far from ushering in the financial revolution, their champions were claiming twelve months ago, cryptocurrencies have been in a downward cycle for most of 2018. But does that mean the game is up for bitcoin and its altcoin cousins, or are we simply experiencing a lull in the long-term upward trajectory of decentralized currencies?
As the breakthrough cryptocurrency, bitcoin is often viewed as a benchmark for the entire industry. And from the highs of December 2017, it’s endured a steep decline. At the start of trading on Monday, December 3rd, one bitcoin was worth $4,000 – a fraction of its $19,783 valuation this time last year.
Bitcoin’s woes arguably date back to August 2017, when Bitcoin Cash devolved as a so-called ‘hard fork’ from the blockchain. Intended as a transactional currency (rather than the investment asset bitcoin had evolved into), BTC has now fragmented into three divergent currencies, each competing fiercely with the other two as well as challenging their parent. If you’re confused by this point, imagine how industry newcomers feel. None of this implies stability, which is absolutely critical to the long-term success of any financial vehicle.
If bitcoin seems confusing to beginners, Ethereum is even less fathomable. Described by its founders as a decentralized platform for hosting smart contracts, this environment uses a crypto-asset known as Ether for payment. Scaling initiatives like sharding are helping to minimize required processing as transactions pass through the network, resolving a key challenge of blockchain-based recording. However, the existence of a currency alongside eponymous tokens (which are able to serve as currency themselves) is hardly intuitive.
Ethereum regularly loses a quarter of its value in a single day, while false rumors of its founder’s death last year wiped $4 billion off its value. It hit a peak of $1,392 early in January, and has declined in value ever since, barring a partial rally in April. As of December 3rd, one Ether was worth $113.
Despite the best efforts of its champions on social media, Ripple has yet to recover from a spike at the start of this year where it reached a value of $3.34. Currently trading for around a tenth of this value, it did double in price over a 48-hour period in September, before gradually deflating to a December 3rd valuation of 35 cents per Ripple.
Unlike bitcoin, which was created to be a cryptocurrency protocol, Ripple was intended to be a straightforward payment system and currency exchange. This suggests a more stable platform, giving hope that Ripple might evolve into a viable cryptocurrency one day. For now, you can only buy Ripples by exchanging them for Ether or bitcoin. This inevitably deters newer market entrants and all those who don’t know their ICO from their BTC.
The wider industry
Because cryptocurrencies are decentralized with no underwriting authority, they’re vulnerable to forks, hacks, and shifts in sentiment. The decision to permit trading (like other stock market commodities) has been deeply damaging, introducing short-term volatility that simply isn’t associated with traditional currencies like the dollar or Sterling. The anonymity of the blockchain used to process cryptocurrency payments has become associated with crime, while fraud and scams are endemic. Several high-profile cryptocurrency exchanges have been robbed, losing tens of millions of dollars’ worth of digital coins each time; investors and customers have lost everything with no prospect of compensation or help.
Few observers dispute that cryptocurrencies offer some compelling advantages over traditional fiat currencies. They’re instantly transferable globally, with no fees or exchange rates. However, a lack of governance has created an unstable market laced with fraud, while price volatility has seen many companies withdrawing prior support for cryptocurrency payments. Firms don’t want to receive a payment today that may only be worth half as much tomorrow. Until these issues are resolved, it’s hard to see digital currencies achieving widespread public acceptance.