Since the start of the year, Bitcoin and other cryptocurrencies have dropped sharply in value and are now at roughly a third of their all-time high. This major drop from the staggering all-time highs achieved in 2021 has left many investors wondering whether or not digital currencies are a passing fad.

This kind of turbulence is nothing new with cryptocurrencies, but this drop comes at a time when the cryptocurrency landscape is evolving incredibly quickly. New public interest and increased regulatory scrutiny were expected to lend some stability to crypto, but it fell just the same. It’s not entirely clear where crypto and other digital currencies are going to go from here.

The State of Digital Currencies Today

Cryptocurrencies are by far the most well-known and widespread digital currencies today. However, they aren’t the only type. Within the field of digital currencies, there are three primary types with their own unique properties.

Traditional cryptocurrencies are the first. They include Bitcoin, Ethereum, and countless others. They’re propagated by a blockchain that nobody has any centralized control over. This continuous ledger is driven by cryptocurrency mining or staking, depending on the specific currency. Traditional cryptocurrencies are known for their anonymity, versatility, and volatility.

The second type of cryptocurrency eventually emerged – stablecoins. These are cryptocurrencies that seek to maintain a steady value, making them an effective option for use as an actual currency. Where Bitcoin can swing wildly, stablecoins are supposed to remain at the same value relative to some reference points, usually the US dollar.

Both types of cryptocurrencies are driven by blockchain technology, essentially putting them outside of any one person’s control. The developers behind stablecoins implement a variety of different methods to stabilize their value. The most common is holding another asset in reserve for each coin issued. This is similar to how paper money originally worked, with the note representing a certain amount of gold held by a central bank.

Tether, the largest stablecoin, pegs itself at one US dollar. It achieves this by holding a corresponding number of US dollars. Tether holders can exchange their Tether for US dollars at any time, which stabilizes the value of Tether to the dollar.

Others attempt to use algorithmic pegging to retain value, but the success of this method is yet to be seen. Terra is one example of such an algorithmic stablecoin, but in May 2022, its value dropped suddenly from $1 to fractions of a cent.

The third type of digital currency is central bank digital currencies (CBDC), and they are quite different from cryptocurrencies.

The Rise of CBDCs

During the early days of cryptocurrencies, much of the focus was on anonymity and a lack of centralized control. However, these are two of the main points of contention among critics and financial regulators around the world. Many countries are against cryptocurrencies due to these factors, notably India with its increasingly hostile legislation and China with its complete crypto ban.

However, the usefulness of a truly digital currency is readily apparent. It lets people perform transactions online without intermediaries. While you can use PayPal or credit cards to pay online today, this involves third-party payment networks and fees. With a CBDC, the transactions take place on a government network designed specifically for the currency.

A CBDC is a type of digital currency issued by a country’s central bank, just like its official currency. While electronic, they won’t necessarily rely on blockchain technology. The central bank maintains control over the currency, which has many crypto enthusiasts concerned about privacy and freedom.

The Future of Digital Currencies

Many countries are investigating the viability of CBDCs, showing that they may be the future of digital currencies. Countries like Nigeria, the Bahamas, and Sweden already have CBDCs in place, with many others having limited trials underway, like China and Russia.

However, cryptocurrencies are still in contention. This is partly caused by the massive rise in questionable crypto schemes such as the Immediate Edge bot which was recently blacklisted here. The simple fact of the matter is that cryptocurrencies will keep going until people stop using them. This could be due to new regulations or the appearance of better options. While there is significant turbulence in the world of digital currencies today, the real question isn’t whether or not they’re here to stay but is instead about what form they’ll ultimately take.

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