Cryptocurrency: The Evolution of Next Generation Assets

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In January 2009 with little fanfare, a revolutionary programmer using the pseudonym Satoshi Nakamoto created the first block of Bitcoin, known as the Genesis Block. 

With the release of the Bitcoin whitepaper, Nakamoto showed that innovative blockchain technology could create a publicly shared transaction ledger secured by digital cryptography. 

What a bitcoin looks like
Image by Satoshi Nakamoto from Pixabay

The chief benefits of this elegant decentralized peer-to-peer digital network come from eliminating the need for intermediaries like banks to exchange monetary value. Secured by a publicly verifiable network, the transactions would be difficult to hack, provide pseudonymity, offer a virtually instant settlement with lower fees, and allow nearly 2 billion unbanked individuals to use previously inaccessible financial services.

This watershed technology opened a Pandora’s Box of new assets, business models, and capital flows, drawing analogies to the creation of the internet. 

From backcountry token to the new asset class

Just as the iPhone had predecessors that fizzled out, the idea of digital cash was not new. Cryptographer David Chaum introduced research on digital cash in 1983, but his electronic cash company founded in 1989, DigiCash, filed for bankruptcy in 1998.

Dave Chum
7 November 2018; David Chaum, Elixxir on Moneyconf Stage during day two of Web Summit 2018 at the Altice Arena in Lisbon, Portugal. Photo by Harry Murphy/Web Summit via Sportsfile

The first “real” cryptocurrency-based transaction took place when an early bitcoin developer named Laszlo Hanyecz bought two Domino’s pizzas for 10,000 bitcoin. Back then, this was only worth around $30. However, at a value of $50,000 (where bitcoin has been hovering in May 2021), that amount would be a whopping $500 million. 

One year after its launch, bitcoin became available on exchanges, allowing conversion against fiat currencies like the US dollar and a way to quickly trade coins. Within two years, other types of cryptocurrency popped up, adapting and innovating upon the principles of Bitcoin to build the flourishing cryptocurrency market we have today. 

Cryptocurrencies Currently on the Market

Over 10,000 cryptocurrencies currently exist, though most have minimal user adoption. Still, as they continue to climb in popularity, initial coin offerings(ICOs) that launch new cryptocurrencies continue to proliferate. 

The total market value of cryptocurrencies has climbed to over $2 trillion in 2021. While bitcoin remains the most popular digital currency – commanding just under half of the total cryptocurrency valuation – a few other coins circulate with significant market capitalizations. Trailing in second place is Ethereum, worth over $400 billion, followed by Binance Coin at over $86 billion. 

And while the rest of the coins on this list aren’t nearly as valuable (yet), they too are surging in popularity:

  •  Cardano: $68 billion

  •  Dogecoin: $66 billion

  •  Tether: $58 billion

  •  XRP: $50 billion

  •  Polkadot: $39 billion

The Exponential Rise – and Fall – of Bitcoin

If you paid attention to the news in February and April, you were probably aware that bitcoin leaped to all-time highs practically overnight. Much of bitcoin’s sudden surge was attributed to Tesla’s $1.5 billion bitcoin purchase in January 2021 and their announcement that Tesla would accept Bitcoin as payment. 

At the height of the excitement, bitcoin reached over $61,000 per coin in March before falling almost $10,000, then rose once more to $63,000 in April. Since then, it’s experienced a bumpy – though roughly upward – ride. 

Elon Musk’s Outsized Influence

Elon Musk
Elon Musk

Remarkably, much of the volatility has been fueled by the whims of one man: Tesla and SpaceX CEO (self-proclaimed TechnoKing) Elon Musk has no qualms about using his tweets to influence cryptocurrency prices, boosting or erasing crypto values in a few minutes or hours. 

 In a sharp reversal, Elon Musk announced May 12, 2021, that Tesla would no longer accept bitcoin for car purchases because of environmental concerns.  Bitcoin prices dropped 5% minutes after the announcement, even though Elon also said they would not be selling bitcoin (which a recent tweet called into question).

Of Musk and Memes

But it’s not just bitcoin that Musk toys with. 

Dogecoin (DOGE) is a “memecoin” with a Japanese Shiba Inu dog breed as a mascot created in 2013 – largely as a joke for crypto enthusiasts. But in early 2021, Dogecoin rose to cult status on Reddit’s WallStreetBets message board (the same one that launched the GameStop short squeeze) …and has since become the world’s fifth-largest crypto by market cap. 

Dogecoin Cryptocurrency
What a Dogecoin Cryptocurrency looks like.

And Elon Musk is loving it. 

While Dogecoin took a 30% plunge after an Elon Musk SNL skit, Elon noted that the coin will entirely pay for SpaceX’s lunar satellite mission, Doge-1, early next year. Tesla also will accept Dogecoin as payment. 

“Mission paid for in Doge – 1st crypto in space – 1st meme in space. To the mooooonnn!!” Musk tweeted.

Institutional Investors Are Boarding the Train (At Last)

With Musk’s Trump-like trigger finger on Twitter roiling cryptocurrency markets, it’s safe to say that cryptocurrency markets are still grasping for footing. The retail-driven market points to the immaturity of cryptocurrency markets, compared with the traditional financial system. 

One man can’t dictate the future of cryptos. And as it turns out, he’s not alone in his influence – several large institutional investors are also validating crypto as an asset class, despite arguments that crypto is too volatile. 

For instance, Morgan Stanley took the plunge in mid-March to offer its wealth management clients access to bitcoin. Just days earlier, JPMorgan launched its “crypto exposure” product to offer its investors “indirect exposure” to a basket of cryptocurrencies. 

And weeks before, Goldman Sachs relaunched its crypto trading desk, noting that “client demand is rising” for bitcoin and other investments. 

This evolution from a speculative asset to institutional buy-in has certainly buoyed crypto’s success this year.  

The Future of Cryptocurrency: Where is it Headed Next?

According to Ray Dalio, the founder of one of the largest hedge funds in the world, crypto’s biggest risk is its own success, because no government wants a competing alternative currency. 

The headline-grabbing success of cryptocurrency market valuations has drawn investors, which inevitably brings about more regulation. Lawmakers have already introduced a bill last month to evaluate digital asset legal and regulatory frameworks. Expect more scrutiny, but also hopefully greater clarity that can remove uncertainty from markets.

Next generation applications of blockchain technology will continue to develop, from self-executing smart contracts based on the Ethereum network to decentralized applications (DApps) and the digitization of non-monetary assets (like art) using non-fungible tokens (NFTs). Decentralized finance (Defi) opens up the opportunity for an entirely new financial ecosystem without middlemen, leading to faster transactions and lower fees. 

Non Fungible Tokens

Cryptocurrencies have arrived to give you much more than whiplash. Just as the internet took decades to evolve, blockchain technology will offer thrilling solutions with a bit of time and patience.