In three series, conCBS asked Prof. Dr. Dr. Dietmar Janetzko the most important questions about two top digitalization topics. In the third part, Prof. Janetzko answers questions regarding the future of crypto currencies
How and why did Crypto Currencies develop in recent years like they did?
The evolution of Crypto Currencies can be described focussing on the internal development and the overall market on the one hand and the external influences on the other.
Inspired by Bitcoin, hundreds of Crypto Currencies have been developed. The three most important digital currencies are currently Bitcoin, Ethereum and Bitcoin Cash. However, today many digital currencies are economically insignificant. In one way or another, all Crypto Currencies depend on Bitcoin – conceptually and often in price development. While some crypto currencies offer something really new like Ethereum with their “smart contracts”, other crypto currencies like Bitcoin Cash emerge through spin-offs, called forks, from Bitcoin.
Let us now look at the external influences. Bitcoin is the flagship digital currency with enormous media impact. This brand awareness certainly contributed to the skyrocketing Bitcoin exchange rate which temporarily exceeded USD 10,000. But speculation about depreciation, government controls (e.g. China) and bans (Bolivia, Ecuador, Kyrgyzstan, Bangladesh, Nepal, Morocco) have contributed to the loss of confidence in Bitcoin and Bitcoin’s price plunge. At the same time, many countries seem to see tremendous potential in the concept behind Crypto Currencies. Countries like Russia, Iran or Venezuela seeking independence from the world’s lead currency, the US Dollar, are observing developments in this area closely, push the development or have already introduced a digital currency like Venezuela did with Petro.
How will Crypto Currencies develop in the future?
The large number of digital currencies already shows that there is a lot of trial and error going on. There are digital currencies with blockchain (e.g. Bitcoin, Ethereum) where basically all participants can check all transactions, and simplified systems like IOTA. There are even digital currencies with gold coverage like Independence Coin. Some digital currencies such as Ethereum and NEO work with blockchains that enable not only payments but also “smart contracts”. In essence, these are if-then commands that go beyond pure financial transactions. Such “smart contracts” e.g. allow insurance companies to make a payment if certain predefined conditions are met. Other digital currencies want to impress with transaction speed. But even Bitcoin Cash – currently the fastest digital currency with 56 transactions per second – is still significantly slower than conventional payment systems like VISA that can handle 24,000 transactions per second.
In addition to the diversity of existing digital currencies, more systems will probably be issued by states in the future – which is in stark contrast to the libertarian origins of digital currencies. Venezuela has made a start here with Petro. It cannot be ruled out that other countries will follow. What kind of systems will prevail in the future is completely unclear. However, what seems clear is that digital currencies will play an increasingly important role.