If you’ve been watching the news or spent any time browsing social media lately, then you have almost certainly seen that cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) have skyrocketed in value this year.
With the Bitcoin satoshi to USD exchange rate up 130% since the start of the year and similar gains seen by many other cryptocurrencies in this time, the cryptocurrency industry has outperformed every major market this year — including major stocks, precious metals, and more.
But what’s behind this recent uptick? Read on to find out.
What Exactly Are Cryptocurrencies, Anyway?
As their name suggests, cryptocurrencies are types of virtual currencies that are built using cryptographically secure technologies. This essentially means they can’t be cracked or hacked, since the underlying technology features extremely strong defense layers.
For most cryptocurrencies, the primary layer of defense is a massive network of nodes or miners (a fancy name for high-tech computers) — which work together to verify transactions and keep the network secure by making sure cryptocurrency transactions are both irreversible and fast.
Unlike regular currency formats, like cash or bank deposits, cryptocurrencies don’t rely on a central bank or even a government — they are entirely independent. Because of this, they are often seen as an alternative to traditional bank-issued currencies that we’re all familiar with using, like the US dollar (USD) or Chinese yuan (CNY).
Since Bitcoin (BTC) became the first cryptocurrency to launch in 2009, the number of different cryptocurrencies has increased dramatically, as has the number of ways cryptocurrencies can be used, spent, or exchanged. As a result, there’s now a cryptocurrency for essentially every purpose, and thousands of merchants, vendors, and service providers now accept cryptocurrency payments.
Why They’ve Exploded in Value
Since the beginning of the year, and even slightly earlier in some cases, cryptocurrencies have been gaining significant value. Over this time, the average cryptocurrency has gained a whopping 160%.
On the other hand, according to exchange rates provided by bestchange.com, some of the more popular cryptocurrencies like Ethereum (ETH), XRP, Stellar (XLM), and dozens of others have even exceeded these returns.
But what’s behind this radical change in value? As it turns out, there’s a couple of main reasons.
For one, cryptocurrencies have seen significantly increased attention among massive institutional investors, including hedge funds, prominent corporations, and even governments.
Back in September, Grayscale — one of the world’s largest crypto funds — added a staggering 17,100 BTC (at the time worth $186 million) to its portfolio. Just a month later, one of the world’s most successful payment giants Square shifted 1% of its total assets into Bitcoin, sucking up $50 million in BTC in a single stride.
But it’s not just big corporations that want in on Bitcoin — governments have also started getting in on the action. The government of Iran has been buying up Bitcoin in droves since October, while Chinese President Xi Jinping recently praised cryptocurrencies and related technologies, and pledged to position China as a frontrunner in the blockchain development race.
These institutions, like millions of cryptocurrency holders today, believe that cryptocurrencies are on a course to replace traditional currencies, and will eventually become the standard means of payment for practically everything. As a result, they’re banking on the future growth of the industry.
What’s Next For Cryptocurrencies
In just over a decade, cryptocurrencies have grown from being a futuristic technology with a relatively limited userbase to a global phenomenon that looks poised to shake up traditional finance as we know it.
But there’s still some way to go yet. Though there have been huge strides in awareness and usability in recent years, cryptocurrencies are still most commonly used by the younger generations with 9.2% of millennials choosing to invest in cryptocurrencies, compared to just 3.1% of baby-boomers (those aged 55+) — according to 2018 survey.
For cryptocurrencies to truly achieve global adoption, they will need to gain momentum across all age demographics. As they become more widespread, and industry giants like Amazon, IBM, and continue to grow their utility and build them into the services we’re all accustomed to using on a day-to-day basis, there remain few, if any obstacles to their continued growth.