Prior to 2008, decentralized digital currency was something that you would only find in science fiction novels. That all changed when a mysterious person (or persons?) named Satoshi Nakamoto invented Bitcoin, the first digital, decentralized, cryptocurrency.
Just twelve years later, Bitcoin and the thousands of cryptocurrencies that have followed have become the hottest thing to hit the financial world since the hedge fund. Cryptocurrencies are talked and written about in serious financial news outlets, traded on multiple exchanges around the world, and even seen by some as the future of money.
How did cryptocurrency go from a domain name and a paper sent to an obscure cryptography mailing list to something that might change the way money works around the world? There is no single factor that did it. Instead, it was a combination of factors that led to this boom in notoriety and popularity. Here are six of those factors that will help you understand the rise of cryptocurrency.
Cryptocurrencies can make you rich
Let’s start with the most straightforward, easiest to understand reason that cryptocurrency has become so popular; people think it will make them rich. Is this true? In some cases, yes. There are plenty of stories out there about Bitcoin investors who have made an incredible amount of money seemingly overnight. The issue is, the same market volatility that has minted millionaires has also cost people their life savings.
Overall, cryptocurrency, and specifically Bitcoin, has been a good long-term investment and a risky short-term one. The price of Bitcoin started at just a few cents and was only around $13 as late as 2013. By September of 2017, it hit its all-time high of almost $20,000. Even though it couldn’t maintain those heights, in 2020 it has still traded anywhere from just under $5,000 to just over $12,000. That’s a pretty nice return if you got in early.
Cryptocurrencies cut out the middle man
When dealing with standard, fiat currency and trading traditional equities, there are a lot of people involved. There are banks and exchanges and brokers and all kinds of other people and businesses that want to take their cut for holding or moving your money around. Cryptocurrencies cut these people out.
Thanks to the blockchain technology that cryptocurrency is based on, you can make secure transactions without the help of any institutions and do it for free. There are also decentralized exchanges where the crypto trading is free as well.
While some of this may change in the future as banks scramble to get involved, centralized exchanges charge more fees and governments come for their cut, for now, with a little technological know-how, you can trade, move, store, and use cryptocurrency without anyone else taking a cut.
Cryptocurrencies are private and secure
With cryptocurrency, there is no physical money to steal or counterfeit and, although all transactions are recorded with blockchain, the owner’s identity is completely encrypted. The currency itself is almost unhackable and there are crypto wallets that come pretty close to being 100% secure as well. The privacy and security of cryptocurrency are unmatched in the financial world.
That privacy and security have made cryptocurrency popular with wealthy investors, celebrities, and discerning traders alike. It has also made it incredibly popular with criminals. The truth is, a big reason for the rise of cryptocurrency, especially in the beginning, was the anonymity it gave to bad actors.
It has long been used to conduct illegal activity because it is much less traceable than dollars or other currencies. It is an unfortunate side effect of the benefits of crypto but one that has helped it grow nonetheless.
Cryptocurrencies are popular for day trading
The cryptocurrency market is incredibly volatile. It is not unusual for coins to have huge price swings in minutes and multiple ups and downs throughout the day. For risk-averse investors, this could be a major turn-off, but it’s exactly day traders are looking for.
Day trading is the practice of making quick, short-term trades (usually within the same day, hence the name) in the hopes of turning a fast profit. When you are day trading in the stock market, the idea is to make small profits that add up over time. In the wild crypto markets, you could make huge profits almost instantly.
There is a lot to consider if you are thinking about day trading crypto but if you have a bit of a gambler streak in you, it could be incredibly rewarding. This Cove Markets article is a good start if you want more details on the mechanics of day trading cryptocurrencies.
Cryptocurrencies aren’t traditional currency
If the global COVID-19 pandemic has taught us anything, it is that we live in a connected, global economy and when that delicate balance is interrupted, especially on a huge scale, that spells trouble. This has many people around the world worried about fiat currency.
As the pandemic shut or slowed down businesses across the board, the global economy felt the strain. Governments reacted by issuing stimulus, adjusting interest rates, and otherwise manipulating financial markets to try and stem the tide.
These moves have worried many investors who wonder how long money will be able to be propped up like this by the powers that be. This has encouraged investors to look at alternative investments such as precious metals and cryptocurrency to protect themselves in the event that currency is devalued.
Cryptocurrencies are new and exciting
The last reason on this list explaining the rise of cryptocurrencies is another simple one. Cryptocurrency is new and exciting. It is cool and techy. It is the “next big thing.” Sometimes that is all it takes to drive an increase in popularity.
Cryptocurrency is a world that tech nerds, financial hipsters, and young people have embraced and that makes it exciting. Is it the future of money? Will it replace fiat currency? Can it provide the long-term appeal that stocks and bonds have for decades?
In 2020, we don’t know the answers to these questions yet, but there are plenty of people who are incredibly excited to find out. These people are betting big that they can predict these answers and they’re driving up the popularity of cryptocurrencies in the process.
These are a few of the biggest reasons that cryptocurrency has experienced its astronomical rise in popularity in the last decade-plus. Whether it continues its rise is anyone’s guess, but with many of these factors likely to remain important in the next decade-plus, it seems like the rise will continue.