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Is Volatility In Cryptocurrency A Good Thing?

Cryptocurrency continues to climb, and the value of the cryptocurrency market is now $242.4 billion, up 91% from the beginning of this year, according to CoinMarketCap. Where these numbers will be at the time this article goes online is anyone’s guess, but I don’t think the trend will differ much. One thing many on both the pro or con sides of cryptocurrency agree on is that the space is volatile.

Skeptics see volatility as a sign of the danger of cryptocurrency and the reason it, or blockchain, has yet to be as disruptive as claims have stated. It’s proof that the technology is too risky to stake any real commodities or have any value.

However, there is another side to this coin (pun intended), and that is that volatility is actually a good thing. In The Age of Cryptocurrency by Paul Vigna and Michael J. Casey, the authors summarize an argument by analyst Gil Luria, writing: “volatility is a good thing, on the grounds that it draws profit-seeking traders into the marketplace. Their presence encourages the development of sophisticated exchanges and more reliable mechanisms.” It is the second part of this argument that’s most promising and exciting for cryptocurrency and blockchain.

Volatility in an industry is how many groundbreaking technologies evolved in history.

For example, technology, practices and methods in healthcare improved to decrease mortality rates. The internet and technology, enhanced through the World Wide Web, platforms and applications that have brought us to where we are today. In the early 90s, the internet was more like the Wild West, but it has become light-years more secure and is now reliable enough for banking, buying and selling almost anything and even meeting our life mate online. Changes didn’t happen overnight. It took years before the telephone moved from one room in your house to your pocket. But now the rate at which our phones advance is so fast, yours is the old model in less than a year.

As with any developing industry, advancement to critical mass will take time and, yes, money. According to Bitcoinist, 92% of blockchain projects fail and have a lifespan of fewer than 1.22 years. However, worldwide venture investments continue to rise, with more than $1.3 billion pumped into blockchain projects in 2018, reports TechCrunch. However, it is also true that people are losing money, not only with failed projects but also through errors in code that have lost users millions in funds. And, of course, the volatility of the market can lead to losses. However, because of that volatility, people are also making money. More and more companies are being added to those that accept cryptocurrency as payment (e.g., Overstock, Expedia and Subway, to name a few).

This continuous cash flow is attracting some of the smartest people to make blockchain work how it promises. My own company just brought on as our as head of research one of the leading researchers in programming languages and verification in application to cryptographic protocols, Dr. Jay McCarthy. Algorand’s founder, Silvio Micali, is a leading faculty member at MIT and invented some of the technology being used in blockchain today. He is also a cryptography pioneer and a prestigious Turing Award winner. Why is that important? The Turing Award is an annual award given to individuals for contributions of “lasting and major technical importance to the computer field” by the Association for Computing Machinery. When people like Micali and McCarthy join this movement, change happens exponentially. In fact, Algorand released their Testnet of their platform in April, with hundreds already participating from their private Testnet.

Money and smart people doing the work means the technology will gain momentum quickly and will be developed faster. Growth in the blockchain community is happening, not only in those interested in using the technology but mainly in those who can develop functional, practical decentralized applications (DApps).

What’s the benefit of a DApp as opposed to a traditional application? Although there are several, the top two are 1) there being no single point of failure and 2) immutability.

Having no single point of failure is what makes blockchain technology virtually unhackable, because no one entity owns or operates the application. So if one node, or device, on the blockchain network is hacked, information is still living on every other node on the blockchain. It will cost more money than it is worth to accomplish a 51% attack needed to take down a DApp.

Immutability, while one of the prime benefits of blockchain, is what makes creating applications on blockchain hard for many developers who do not have a skilled background in cryptography, or blockchain development, which is less than 6% of the world’s developers. What immutability means is DApps cannot be changed once put out. This makes it very beneficial for security and transparency, but when it comes to fixing errors that cost users money or valuable assets, bugs have to be fixed across all copies in the network, which can be daunting. Also, when learning to use blockchain, as many developers are doing, errors are easy to make, as is often true whenever beginning something new.

But an expanding market and, yes, a volatile one will change that. Many companies, including mine, are creating easier and better ways for developers to bring value through applications on blockchain. Protocols are being developed that help with outputting an application using modules and building blocks for blockchain so developers can focus on making their product for its market instead of trying to fit into blockchain technology. They are actually taking advantage of what blockchain has to offer, all while making sure the software is bug-free, eliminating loss of assets once their DApp is live.

I believe growth will continue as the market finds more movement in ease of use and ways to introduce more users to the technology. To me, its taking time to grow doesn’t mean it’s a scam or won’t succeed. Expansion in funding, successful projects, experts in the field and interest from developers all point to a space being primed for success.

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