Will Crypto Crash? Full Analysis
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Lots of people have been predicting bitcoin’s doom since its launch in early 2009. More than 200 leading media stations have predicted bitcoin’s crash just the last five years.
Apart from Bitcoin, more than 1000 cryptocurrencies were launched in the last 8 years. Together with bitcoin, they control a market worth hundreds of billions of dollars, which shows just how dominant the crypto industry has developed.
However, the rise of cryptos hasn’t stopped critics from spelling doom on the industry. Remarks about an impeding crash keep surfacing. The article below looks at all the factors that may cause the industry to crash and the chances that it could actually crash.
Can Crypto Crash?
Lately, there have been a lot of negative reactions towards the cryptocurrency industry. For instance, billionaire investor Warren Buffet said that Bitcoin is “probably rat poison squared”. This was after he was asked to comment about the remarks of his business partner Charlie Munger, who recently called Bitcoin “turds” and also compared the coin to rat poison.
Buffet said that cryptocurrencies investments are based on mere speculation since the digital coins do not produce anything. Another prominent investor Yale economist Robert Shiller also thinks that Bitcoin and other cryptocurrencies will eventually collapse and be forgotten. Jack Bogle, the founder of Vanguard, compounded the criticism when he trashed Bitcoin at its all-time high saying that investors should avoid the coin like plague.
Despite these negative criticism, bitcoin and other cryptocurrencies still seem to be holding up with the pressure. There are still a lot of investors in the crypto community who think that the blockchain technology has a lot to offer to the financial world.
What Could Cause the Crash of Cryptocurrency?
Cryptocurrency investors have a lot of confidence that this technology will eventually take over financial markets. However, it is also very possible that most cryptocurrencies will eventually collapse. Apart from the newbie panic sellers who buy high and sell immediately after a small price drop, there are other major factors that can lead to a cryptocurrency crash. Here are some of those issues
Most cryptocurrencies are designed to be used as methods of payments to replace the dominant financial systems. There are, however, issues to do with the speed at which crypto payments take place. Most of these coins take an awfully long time to have payments confirmed and completed making them unattractive to most clients. For instance, bitcoin takes an average of 78 minutes to have transactions confirmed which are unattractive in the crypto world. The faster the transaction speed, the more customers will use the system. The good news is that banks and most other financial systems also take a lot of time.
There have been positive developments in the crypto industry that is changing this trend by allowing prompt and cheap payments. This has been possible as some systems increase their block size limit.
For instance, transactions in the Ripple network take just 4 seconds, with over 1 million transactions daily.
Ethereum >> Transactions take about 6 minutes on average with about 25 transactions per second.
EOS >> transactions take an average of 1.5 seconds and the network can perform about 50,000 transactions per second with low transaction fees.EOS network is also very secure and scalable.
Neo >> transactions take an average of 15 seconds. About 1000 to 10,000 transactions per second can be carried out on this network.
Nano >> coin is another cryptocurrency that is revolutionizing payment process. Nano’s transactions are instant and free as it uses the block lattice technology.
Developers propose various ways in which users can speed up their transactions when using cryptocurrencies. Here are a few ways:
Increasing Gas Limits
You can increase gas price and limit to speed up your transactions. When payments are higher, the transactions on the network get confirmed faster than those with lower payments. This concept is especially possible when mining Ethereum.
Opt to Use a Faster Crypto
If you are consistently transferring and receiving coins, it would be easier if you choose a fast network or cryptocurrency like Litecoin. A faster network enables you to earn more profits considering crypto volatility.
Increasing the Fee Via Your Wallet
You can choose to use a wallet that lets you choose extra fees to have your transactions pushed to succeeding blocks. This process, however, is not a guarantee that your transaction will be pushed to the succeeding block.
Using a Transaction Accelerator
Some mining pools come with mining accelerators but for a fee. These accelerators push your transactions ahead of the que. Your transaction will be pushed to the oncoming block that is to be mined as long as you pay a BTC fee of 0.00001.
Regulation and Taxes
Cryptocurrencies are meant to make payments between peers effective and cheap. They do this by eliminating third parties like governments, financial institutions, and other regulators. The systems are decentralized, meaning that transactions are carried out directly without any regulations.
Regulation and taxes will have a negative effect on cryptocurrencies and will defeat the essence of decentralization and elimination of third parties. It will not be possible to carry out peer to peer transactions, as the regulations will put limits that were initially not there. Transactions in cryptocurrencies were meant to avoid extra charges from financial institutions as well as government taxes. If taxes are introduced, then the cost of transactions will increase defeating the primary purpose of financial freedom.
Regulation will also put restrictions on ICOs. Many companies are now able to raise funds within a relatively short time using cryptocurrency. Even though there are unscrupulous individuals who try to swindle potential investors, a lot of start-ups have been able to raise more than enough capital using the blockchain technology. Regulations will be an impediment to these ICOs and by extension, the start-ups. Regulation will also kill speculation, preventing the free growth of digital coins.
A lot of people in the cryptocurrency world are worried that quantum computers will pose a threat to the blockchain technology and cryptocurrencies in general. But what really is quantum computing?
Blockchain works in a way that all recorded transactions are public and transparent. It is possible to corrupt any data that is recorded in this ledger since no single computer or node can access and delete any information on the blockchain.
Cryptography uses public and private keys. These keys are used to encrypt information. A public key can be shared, but a private key is only held by its owner. While anyone can encrypt data using the shared public key, only the owner of the private key can decrypt the message. It is very difficult to determine a private key from its corresponding public key.
Public and private keys are linked using factors of numbers of two very large prime numbers. In order to decrypt a private key from its public key, you would be required to guess or calculate all the possible factors of the product of primes. This calculation requires a very fast and strong processing power. Existing computers do not have this capability, but quantum computers could manage to do this in a very short time.
Quantum computers will apparently have increased computing and processing power. This technology uses quantum bits that can exist in any superposition between the values of 0 and 1 thus enabling them to process a lot more information than just 0 and 1. Despite this ability, cryptocurrency industry has nothing to worry about since this technology is still years from being realized.
The issue of energy consumption due to the use of specialized mining machines has been consistently pushing the cost of cryptocurrencies and their transaction cost higher. Energy consumption is coupled with environmental pollution. Scientists claim that cryptocurrencies mining has been releasing as much carbon dioxide as a million transatlantic flights. This statistic is extremely alarming.
This concern is especially serious with most coins that use Proof of Work (PoW) cryptography to generate new coins. PoW is a computer algorithm used by digital coins such as bitcoin, Ethereum, Litecoin, and others to create a consensus or reach an agreement.
Miners are required to solve complex mathematical problems which peers in the network must confirm and agree on a particular solution to release a crypto block. If all the nodes or computers connected to the network agree on a particular solution, then the miner who got it will receive a reward in terms of digital coins and the block will be added to the chain.
Initially, these computations were possible with ordinary personal computers. As the mining difficulty increased for various coins, miners so the need to use advanced computers such as ASICs to increase the speed and computational power. The faster the computational speed, the easier it would be for a miner to solve these problems before other miners.
This competition has seen even more powerful mining machines that consume a lot of energy developed. The cost of these machines coupled with their energy consumption is defeating the primary essence of cryptocurrencies and may see some of them collapsed due to unsustainability.
Bitcoin uses the hashcash (SHA-256) PoW algorithm. Miners have to solve extremely complex mathematical or cryptographic problems to have blocks added on to the bitcoin blockchain network. Solving these problems takes a lot of time and energy as the odds of hitting a specific target beginning with 18 zeros is extremely low. The machines have to make numerous attempts requiring a lot of processing power and thus consuming a lot of energy. For instance, in November 2017, the bitcoin network consumed power estimated to be more than that of the Republic of Ireland. Currently, this network is using more than 42TWh per year, which is more than that of Hungary and New Zealand.
There are coins, however, that uses Proof of Stake, instead of PoW. This is another consensus method but unlike PoW, does not require complex mathematical computations. This means that it does not consume a lot of energy and consequently does not pollute the environment.
In this method, users are rewarded depending on the number of tokens or coins one has in the network. The more one has, the more they are likely to protect the network and the more rewards they will earn. PoS blocks are forged, not mined like those of PoW.
Holders of tokens are selected in pseudo random basis and blocks are forged for the selected holders then added to the blockchain. In this selection, only those individuals with a significant number of tokens in the network get the first priority. Coins that are pre-mined especially use this mechanism to provide users with coins for staking. There is a transaction fee that acts as an incentive in this system to keep the network active.
Why is Crypto godsend?
Despite the challenges facing cryptocurrencies, this technology has benefits that will change the manner in which people make payments as well as other useful non-financial functions if utilized correctly. Tech enthusiasts hold on to the hope that digital currencies will eventually take over as the global form of payment, replacing fiat currencies despite the negativity surrounding the crypto industry.
Even though governments and other regulators have cast a keen eye over the digital currencies, they have not yet instituted any stringent measures that could pose a serious threat to them, giving them more room to grow. There is still room for speculation as developers continue inventing more and better cryptos. You can still make a good amount of money with the right information and with the right investment.
Blockchain technology is a new kind of tech that is here to stay. This technology allows the distribution of data while preventing any particular node on the network from copying it. Apart from financial transactions, individuals can create contracts and other business deals using the distributed network without the need of middlemen such as lawyers.
All transactions are validated by anonymous members within the network and recorded on a public ledger. Validators are rewarded by digital coins within a particular network. It will be very difficult to do away with such a technology, considering the manner it will ease the process of doing business. If this technology is to stay, then that means cryptocurrencies, the gas used to fuel these transactions are not going anywhere.
In a Nutshell
Despite the negative criticism, cryptocurrencies are not fading away any time soon. The convenience they promise to bring to the financial world cannot just be wished away. Governments and other regulators will either be forced to come into the industry and conform to the rules and regulation of crypto or sit back and watch as the industry revolutionizes the world.
This is the new internet that promises freedom and ease of doing business without the need of involving unnecessary parties.
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