Cryptocurrencies are best kept in their niche market status. The biggest crisis the industry has faced so far undoubtedly was the rapid collapse of FTX. When Sam Bankman-Fried’s personal treasury collapsed, it was the third largest cryptocurrency exchange platform in the world. This event had a huge impact on the entire industry, not only causing a sharp drop in cryptocurrency prices, but also affecting many related companies.
As of the end of 2022, it was unclear whether the concept of cryptocurrency could make a comeback – the blatant fraud behavior of one of the most consumer-savvy and trusted cryptocurrency companies seemed to validate the common perception that this was all just a cover for fraud.
However, today the situation seems to have improved, although there is a general fear that the industry is repeating past mistakes and may face punishment again. For experienced cryptocurrency investors and observers, this has always been the norm: the cyclical fluctuations of the market have become part of daily life since the collapse and subsequent recovery of the Bitcoin market at Mt. Gox exchange in 2014.
But isn’t it strange that this increasingly mature industry sees these cycles of rise and fall as normal? In my opinion, the widespread adoption of any blockchain technology or consumer application depends largely on the token price – or rather, the industry as a whole – should not always be at risk of imminent collapse.
The biggest challenge to the development of cryptocurrencies is its own growth. The extreme optimism in times of market boom and extreme pessimism in times of market downturn, cycling about every four years, is the consequence of cryptocurrencies seeking widespread adoption.
The brutal process of adoption is a classic example of what economist Robert Shiller described as “irrational exuberance.” The promise to fundamentally change the core values from currency to the internet itself has sparked interest. People are attracted to the idea of decentralization (or, for many, the hope of making quick profits). As popularity rises, prices increase, which in turn stimulates more investment – until a problem arises.
Almost without exception, what fails are the very things that blockchain was designed to replace. And these things are almost always designed to make cryptocurrencies easier for users to accept and use. There is a common belief that the “masses” may not choose to self-custody assets. But what is the point of assets like Bitcoin if there is no self-custody?
Alex Thorn, head of research at investment bank Galaxy Digital, said, “As the number of users increases, one risk is that new users may not understand core Bitcoin principles, such as decentralization, self-custody, hard money, and other concepts. If these new entrants do not learn, understand, and support these core concepts, then over time, the protocol features that make these concepts possible may not be maintained.”
The tension between decentralization goals and mass adoption is clear. If cryptocurrencies develop too large, they may undermine their true value. Nathan Schneider, media studies professor at the University of Colorado Boulder and author of “Ours to Hack and to Own,” points out, “Just being integrated into the mainstream financial system could mean losing many of the important opportunities provided by this technology.”
Paul Ennis, lecturer at University College Dublin, also expressed a similar view, saying, “Cryptocurrencies are a subculture that is unwilling to admit it is a subculture. Many of the problems we face stem from the discussion of ‘bringing the next billion people in,’ which leads to our values gradually eroding.”
There is a certain irony in the fact that developers, founders, and investors spent 15 years and billions of dollars looking for a “killer app” for blockchain, but it has actually been around for a long time. Satoshi Nakamoto and those who truly follow in his footsteps have created a tool for digital transmission that is free to use and difficult to take away.
This is the core of cryptocurrency.