There is no doubt that after the explosion and success of Bitcoin that cryptocurrency and blockchain technology is becoming more mainstream.
Investors in crypto specifically Bitcoin and Ethereum have recently seen their investments pay off and that continues to grow on the stock market.
Thanasis Stengos is a professor of economics at the University of Guelph and he said that despite the increased interest in crypto, he doesn't see it becoming a more mainstream currency that governments will introduce any time soon.
"This started out with Bitcoin in particular as a potential alternative to the usual currencies that exist," he said, "one thing that is in some way favourable for the idea is some kind of universal type of money accepted by everybody without having to go through exchange rates. The main obstacle that exists and that will never go away is that currency is printed and issued by central banks and governments. They essentially do that in order to have control over monetary policy. That policy is one of the main instruments of controlling the economy in expansions and contractions."
Stengos said that because of governments using monetary policy as a way to control the economy, he doesn't see them relinquishing control to introduce a cryptocurrency as the currency of choice.
"Crypto can be used by individuals to transact, typically people who want to get away from the checks and balances of controls of the government through banks that control how much they have in their accounts. The idea here would be something totally out of control without having an intermediary bank that would record your crypto transactions. Things would be essentially not traced. The problem here is how do you make sure that a transaction takes place and that there is transparency with it? Stengos asked. "That's where the blockchain idea comes in where everybody who's involved in the process confirms the transaction."
Stengos said when you have to confirm every transaction through the blockchain it creates a lot of computational demands on the system.
"The problem becomes extremely complicated computational speaking. The demands on computational power on how to handle and record these transactions is enormous," he said, "if you go to a currency with crypto, you want it to be scarce at first. You don't want it to flood the market with digital coins and monies because of course, they would lose their value. One of the main provisions of the original construction of digital currency is to create a limited supply that is controlled by having to solve a problem. The more people involved, the more difficult the problem would become. The solution to that problem essentially becomes running computers for a long time to solve these problems."
Stengos said that when digital currency first came to market much like Bitcoin, the problems were very easy and the rewards were higher.
"One Bitcoin was worth a few cents at first, it was nothing. Now of course it's become a speculative asset. People speculate on the price whether it goes up or down. At the end of the day given there are now quite a few digital currencies around, they now compete with each other. Bitcoin now is probably one of the more standard and safest digital currencies on the market."
The two main digital currencies that have become more mainstream are Bitcoin and Ethereum. Stengos said the energy requirements on the verification and harvesting process has put a big strain on the energy requirements that were not thought about when the digital currency was first introduced.
"These things really get to increase exponentially the demands on energy to harvest new coins. Countries are starting to regulate and start thinking that these alternative and payment schemes will never replace the main currencies. But, they are being used to exchange things."
The first country to introduce cryptocurrency as a legal tender is El Salvador. Despite the country making that move, it has been dealing with glitches to perform transactions.
"It adopted Bitcoin as a main currency and this is as stupid as it gets," said Stengos, "those that have Bitcoins in El Salvador went to exchange it because they thought they would lose its value. It's the other way around, you would think that because Bitcoin became more stable, people would like more of it. The opposite is the case. You wouldn't want to go to the Beer Store or grocery store with a piece of currency that loses its value or fluctuates enormously. There's a lot of uncertainty and it would never make it the standard of exchange we would expect the currency to have."
The most popular items being exchanged by digital currency right now are NFTs or non-fungible tokens.
NFTs are essentially a tool that uses blockchain technology to provide proof of ownership of a digital asset such as an image, audio clip or a tweet — are currently a fringe item used primarily by tech enthusiasts and artists, but experts say potential uses for the tokens are nearly limitless, including the proof of ownership of assets like cars or real estate, or just about anything of value.
A non-fungible token is certified on the blockchain (the same technology that ensures the security of cryptocurrencies like Bitcoin), and whoever owns the NFT is deemed the original owner of the asset.
Stengos said that many people have invested in crypto and blockchain already but he believes the more stable investment will be blockchain technology.
"Like every investment that you do, when more and more people get into it, you get out," he said, "The blockchain is not a fad because it's a useful technology. Nobody talks about blockchain itself, we only talk about cryptocurrencies. Crypto is the outcome of blockchain. Nobody talks about the underlying technological advances through blockchain. I would go for the technology anytime," he said.
Stengos said that if people want to take risks, do it with stuff that you understand.
"If you understand the item for which you take a risk, then go for it. Some people don't understand crypto and what they do. There are a lot more cryptos and why would you have one over another?" he asked.
Stengos said companies are looking to streamline processes by using blockchain technology.
"It's very clever what blockchains do," he said, "I think the most important applicability lies in contract verification in law, legal matters. I think it will be widely used in any transaction that involves different players that need to verify their contract details. The technology itself is here to stay because it's proven to be useful. I don't understand the product of it through cryptocurrency," he said.
Stengos stresses that blockchain and cryptocurrencies are two different things and people tend to confuse that.
"You have something that is produced on the shoulders of something else that is very useful and not applicable to many other things," he said.
There have been efforts in the U.S. to regulate cryptocurrencies however, nothing has been regulated just yet.
- With files from the Canadian Press