There are over 2,000 cryptocurrencies and each purports to offer a unique solution to given problems. However, cryptocurrencies can only achieve so much in practice albeit the companies and platforms behind them have robust ambitions. To this end, all cryptocurrencies can be put to a variety of uses.
Using cryptocurrencies as investment securities
Bitcoin, the biggest cryptocurrency by market capitalization, is a good example of an investment crypto asset. Early investors bought Bitcoin for cents and saw prices rise to over USD 19,000 in less than ten years. Bitcoin turned out to be one of the most lucrative cryptocurrencies of modern times.
Many cryptocurrencies qualify as investment assets and some are designed purely for investment purposes. Most cryptocurrencies are backed by new companies with ambitious plans. The success of these companies translates to a rise in their cryptocurrencies’ value. This has happened severally in the case of already successful crypto companies such as Ethereum and Ripple.
A lot of thought should be put into using cryptocurrency as an investment security. It pays to make your picks wisely as returns on your investment will depend on the underlying company’s performance. Considering that a good portion of existing cryptocurrencies are outright frauds, as well as the fact that many cryptocurrencies are set to fail or stagnate, then you should take no chances. For surety, invest in a cryptocurrency that is regulated by authorities such as the SEC as this guarantees security for your investment.
Cryptocurrencies for goods and services
Most merchants would not touch Bitcoin when it was still new as some even considered it a scam. Fast forward 8 years later and some of the biggest global brands in diverse industries including banking, health, educating, and hotels are adopting systems to accept payments in Bitcoin and other cryptocurrencies.
Bitcoin, albeit mostly used as a security cryptocurrency, was developed as a digital alternative for fiat currencies. Other major cryptocurrencies including Ethereum have also been making inroads among merchants. Some of the notable companies that accept Bitcoin and cryptocurrencies as forms of payment include McDonalds, Virgin Atlantic, and even Lamborghini, among many others. What’s more, millions of small-scale retailers around the world are also embracing cryptocurrencies due to public demand. There are even cryptocurrency ATMs in major cities around the world where crypto holders can cash out.
At the moment, cryptocurrencies are yet to become fully established as a medium of exchange. For instance, the recent slump in prices and the rise in volatility levels is making cryptocurrencies undesirable. However, this is understandable as cryptocurrencies are still new compared to fiat currencies and traditional assets. To this end, certain stable cryptocurrencies such as Bitcoin may become actual, mainstream alternatives to government-controlled fiat currencies. Cryptocurrencies would work better than fiat currencies as they are decentralized – however, they have a long way to go.
This may sound far-fetched, but the revolutionary Yellow Vest protests gripping France have highlighted the shortcomings of fiat currencies and even led some people to recommend Bitcoin to free themselves of the government’s control.
Cryptocurrencies as utility tokens
Moist cryptocurrencies are designed as utility tokens that will eventually gain monetary value. Many existing platforms have launched their own cryptocurrencies that clients can use to access certain features. The best example of this is the gaming industry – many games require users to have special tokens to unlock certain features such as weapons and unlocking higher levels.
Interestingly, utility tokens can also double up as investment assets depending on their performance. For example, Coinbase, one of the world’s largest cryptocurrency exchange platforms, has its own token that clients can use to unlock bonuses and better trading features. These tokens can be bought for other cryptocurrencies such as Bitcoin, which in turn can be exchanged for fiat currencies. It is important to note that some utility tokens are backed by cryptocurrencies while others are entirely independent.
Cryptocurrencies for fundraising
Like cryptocurrencies, initial coin offerings (ICOs) have also grown from an unlikely concept to a full-fledged industry worth billions of dollars. As of 2016, ICOs had raised a little over USD 2 million. This figure has risen to over USD 6 billion in just two years and is expected to get even bigger in the near future.
ICOs work like IPOs but with certain key differences. The company behind the fundraising gets funding in exchange for securities – in this case, cryptocurrencies and tokens. The investor can then wait for the company to peak and its underlying cryptocurrency to soar before selling. The main difference with IPOs is that these securities are usually not regulated.
You will need to come up with a viable idea for a business to use cryptocurrency for fundraising. You will also need to develop your very own cryptocurrency – this is easy using Ethereum’s ERC20 platform. This sounds easy enough – this is why there are so many scams in this space. However, investors are becoming wiser and scrutinizing ICOs thoroughly, so this option is mostly viable for entrepreneurs who don’t mind building their businesses on the Blockchain and cryptocurrency platforms.
Cryptocurrencies are also become popular for funding noble NGO causes. For instance, aid organizations are accepting donations in cryptocurrencies and converting them to fiat currencies to support their work or investing in good projects as UNICEF did. Other organizations have been built entirely on cryptocurrencies as they seek to leverage their growing popularity.
The dark side of cryptocurrencies
Most cryptocurrency critics have faulted cryptocurrencies for their vulnerability in criminal uses. For instance, governments around the world are worried that criminals will use cryptocurrencies to launder money, fund terrorism, and evade taxation.
True: cryptocurrencies have been used for criminal purposes. For instance, Bitcoin was a popular medium of exchange of the dark web platform dubbed Silk Road. It was used for paying for illegal goods such as drugs and sex. Other cryptocurrencies have also been used for similar and even worse purposes.
Cryptocurrencies are prone to financial abuse because of the anonymity they afford users. Users’ real identities are hidden, so they cannot be traced. This is tempting if you wish to transact in private, but it is not recommendable as it is now clear that authorities can get past the anonymity measures implemented by most cryptocurrencies, including Bitcoin.