Why Do Cryptocurrencies Keep Crashing?

Why Do Cryptocurrencies Keep Crashing?

What is cryptocurrency? and why does there seem to be daily stories about an Ethereum cryptocurrency crash

The cryptocurrency market is a newly-emerging and promising one for investors from any field. Basically, a cryptocurrency is a currency that exists only online, and is used to buy things or services on the internet. Cryptocurrencies use files instead of paper bills or coins, and every operation that has been carried out with this file is automatically encrypted in it. As a result, every bitcoin or ether (the two major cryptocurrencies at present) carries all the information about transactions which were carried out with it. Encryption disables copying or counterfeit because the system knows where the coin was used last and where it is now.

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There are many ways in which one can use cryptocurrency. It may be used to buy and sell things online, cashed out into real life money like dollars or euros, deposited in a bank account. Ether is a more recent development, and its functionality is somewhat broader. Not only the note’s history, but also a program code which can perform some actions with the note (read “money”) if certain conditions are met, can be encrypted in it. Basically, it is money that can use itself to buy or sell something without the owner having to actively engage in the process, everything can be programmed “inside the money”. In this respect, ether is much more promising for investors than bitcoin, as some experts think.

There are definitely good sides and bad sides to the newly emerging digital currencies. The good sides are:

  • there is no single central institution that controls or stabilizes the cryptocurrency, and therefore there is little risk that it will be hacked into and the whole system will shut down
  • cryptocurrency does not depend on any changeable conditions like the change of government in power or economic crises
  • cryptocurrency is transparent and safe, it is very hard to steal or fake it
  • transactions have a high degree of anonymity

These seem like very good arguments in favour of using ethers and bitcoins. However, the main downside derives from the same advantages: cryptocurrency is not backed by any tangible finite resource like gold or oil, and thus its value cannot be controlled. For now, the only factor determining the value of cryptocurrency is people’s interest in cryptocurrency. As long as people use it and invest in it, its value grows.

Ethereum cryptocurrency crash of July 12th – What Happened?

For these obvious reasons, the values of both bitcoin and ether have been having a rollercoaster ride since January 2017. In June, ether reached its all-time high of 407,10$, while in January it was only 8$. However, on July 12th, the value of an ether dropped again, this time below 200$. Such insane fluctuations may seem impossible to make terms with. This Ethereum cryptocurrency crash, as the media call it, has caused a lot of stir, mostly on the part of investors and buyers who are trying to figure out why it has happened.

It is clear that, if a currency cannot be controlled, its values have very little predictability. The crash may have occurred simply because its value was very high and many people started to cash out on it. Both ether and bitcoin still have little credibility and are not accepted by so many businesses online, thus cashing out on them is wise if the value has risen high enough. Another reason may lie in the fact that bitcoin is expecting an update in August, and the future of the currency after the update is not yet clear. The developers’ team behind bitcoin has split into two, as they view bitcoin’s future differently. Thus, two separate updates may follow this row in August, and so, bitcoin may not exist as a single currency anymore. At first sight, it has nothing to do with Ethereum, however, since there are not so many cryptocurrencies on the market, the reputation carries over to all of the class representatives if one of them screws up.

With so little predictability and so much stir around the recent Ethereum cryptocurrency crash, it is no wonder cryptocurrencies are losing credibility. The future of the cryptocurrencies, for now, remains unknown. There are many adjustments and updates that should be made in the effort to make the currency more stable and less fluctuating. Since the idea was to make it a free Internet money experiment, that is to create a currency that does not belong to anybody and is of free use to anyone, it is very unlikely that a central controlling agency would ever be created. For now, it is advised to stay away from the cryptocurrency market until the values stabilize and the currency is more reliable. Perhaps, some modified version of the currency will appear in the future that will be much safer to use and invest into.

Article by Ellen Royce

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