The Cryptocurrency Explosion
The Technical Expert Solution for IP Teams
Within the past five years, cryptocurrency has gone from a 25-billion-dollar industry to a multi-trillion-dollar powerhouse. Since Bitcoin’s creation in 2009, cryptocurrency has launched itself from a niche fad to a household name. However, cryptocurrency is still in its infancy as a financial institution and it may be years before cryptocurrency becomes a reliable and accepted form of currency. Let’s take a look at what cryptocurrency is, the current state of the industry, and what the future may look like with cryptocurrency.
Cryptocurrency is a digital form of currency that is decentralized from any existing financial institution (government, banks, etc.), meaning there is no middle-man between transactions. The “crypto-” aspect of the currency comes from the use of mathematical cryptography to secure and solidify transactions. For example, blockchain uses a “hash” algorithm to encrypt information while other distributed ledger technologies (DLTs) use different encrypting techniques. Cryptocurrency as a whole is often referred to as “crypto” in the media and pop culture.
A blockchain is a type of distributed ledger technology (DLT) that holds information in “blocks” in a chronological order, thus the name “blockchain”. Blockchain is also an add-only ledger that is completely visible to the public. A distributed ledger technology is a digital ledger that stores information on a database that is distributed throughout “nodes” (i.e., network of computers). The information stored in the ledger is secured using cryptography. Blockchain is by far the most popular DLT but there are other types such as Hashgraph, Distributed Acyclic Graph (DAG), and Holochain.
There has been a significant increase in cash flow into the cryptocurrency market in the last few years. Hesitant investors may be wondering: why is cryptocurrency so popular right now? Here are some reasons why the cryptocurrency industry has skyrocketed into the mainstream.
Decentralization: Since no bank, government, or other financial entity holds and distributes the currency, transactions can occur at much faster rates at any time of the day or week. Crypto enthusiasts also use decentralization as a political platform; if more consumers get involved with crypto, large banks could potentially lose their financial power.
Digitization: As technology grows and improves, so does the digitization of everyday life and currency is no exception. 20 years ago, no wallet or purse was empty of dollar bills. Now, some people do not even use a wallet or purse and instead only use their smart phone to purchase items. Some investors believe that the natural trend of business will inevitably lead to a completely digitized process and a digital currency is the first step in realizing this future.
Security: Due to the complex mathematical cryptography and reliability of digital ledgers, cryptocurrency boasts its security superiority over normal methods of transaction. To hack a single blockchain and decrypt its contents, it would take a supercomputer thousands of years and enormous amounts of power to do so. Furthermore, each transaction on the ledger is visible and accessible to every user in the blockchain, so it is very difficult to duplicate, steal, or defraud without other users witnessing and reporting it.
Rapid Growth: The rapid growth of the crypto market has attracted many investors, from savvy businesspeople to average consumers. Some investors are seeing crypto as an opportunity to make significant short-term returns on investments due to crypto’s rapid growth and volatility, but these investors usually have the wealth to weather the unpredictable storm of the crypto market. On the opposite side, many new investors are witnessing the rapid expansion of the industry and do not want to miss out, but these investors are the most at-risk of suffering big losses.
In 2022, cryptocurrency has seen new heights but also tremendous falls. In November 2021, the crypto market reached a record-high 2.9 trillion-dollar market cap. Then, in just 7 months, the market cap dropped to 790 billion dollars in June, losing 72% of its value. This crash has shown the extent of volatility in the crypto market and strengthened the argument for cryptocurrency regulation.
However, it has never been easier to enter the cryptocurrency market. Trading platforms like Robinhood, FTX, Coinbase, and Cashapp have introduced cryptocurrency options for their users and even allow users to buy bitcoin “slices” (fractional shares) to increase accessibility. Another popular gateway into cryptocurrency is a non-fungible token (NFT). An NFT is essentially a digital proof of ownership of digital media that is usually purchased with cryptocurrency and secured on the blockchain. NFTs have been in the spotlight recently because of celebrities and music artists flaunting their digital art collections or NFTs selling for millions of dollars, but with the recent crash and popular sentiment, many believe that NFT’s 15 minutes of fame are coming to an end.
In addition, the environmental impact of bitcoin mining and digital information loss have become serious concerns in the crypto industry. Bitcoin “miners” use exorbitant amounts of electrical power to verify transactions with advanced computers. Also, since cryptocurrency is completely digital, it is vulnerable to the same issues as any other digital information: power outages, memory wipes, hardware damage, and network crashes.
What does the future of cryptocurrency look like? The most desired improvement to cryptocurrency is stability. In light of recent events, the discussion of government regulation has gained new fervor and proper regulation could be the catalyst to widespread use and acceptance of cryptocurrency. More countries are joining the cryptocurrency network which may change the way international business is done due to the reduction of transaction time and currency exchange. The first Bitcoin Exchange-Traded Fund (ETF) will list on the stock exchange soon, allowing investors to hedge the fund and create more stability on investments.
Cryptocurrency and intellectual property may seem like an unlikely pair but their intersection could have a beneficial and fruitful outcome. The technology that cryptocurrency provides has many uses in IP. Blockchain and other DLTs could provide a more modern approach to IP monitoring by providing better security and documentation to IP transactions. Furthermore, DLTs themselves have been patented and, as more developments in digital ledger technology arise, more inventors will want to protect their innovations. However, the unregulated and decentralized nature of cryptocurrency generally opposes the introduction of IP law. For example, Bitcoin’s code is open source and several cryptocurrencies were launched using an edited version of Bitcoin’s code. Had Bitcoin decided to copyright its code or patent its method, the development of new cryptocurrencies may well have dwindled.
Furthermore, cryptocurrency codes improve at a significant rate because of open-source privileges, so IP could potentially have a negative impact on the current trend of program advancement.
In summary, the presence of IP in cryptocurrency is still a new enterprise with pros and cons that have yet to be realized. However, as cryptocurrency becomes demystified and more accessible to the public, efforts to introduce IP law will grow.