Cryptocurrency is something that we all have become familiar with, considering it has been in circulation for almost a decade now. Cryptocurrencies like Bitcoin have traveled a long way since its white paper was first published 10 years back, with a $200 billion market capitalization today. Cryptocurrencies have seen unprecedented growth, although their prices have fluctuated over a period, which has attracted a lot of attention. Price hikes especially in 2013 and 2017, has led to larger adoption of cryptos, especially Bitcoin which is considered more stable than other cryptocurrencies.
Bitcoin has also recently been accepted as a valid mode of payment by corporate giants like Microsoft, Expedia, etc. and is being increasingly used in various sectors. Yet cryptocurrency is far from its real objective, the objective of emerging as an alternate viable currency option. For this cryptos need to be accepted and adopted to a far greater degree than they are present. As of now, many sectors like Bitcoin gambling, especially various governments, are skeptical about cryptocurrencies with some even having banned cryptocurrency use. Cryptocurrency still has a small number of use cases although 2020 is being estimated by Nobl Insurance to be a ‘tipping point’ for cryptos with almost 25 million Americans expected to own them. There are certain stumbling blocks in the adoption of cryptocurrencies, now let us have a look at those.
Cryptocurrencies are no longer about Bitcoin alone as several alternative cryptocurrencies have entered the market, which are also called altcoins, which shows the fluidity of the market. However, none of these cryptocurrencies have been adopted on a mass scale for certain reasons. There are certain stages of mass adoption, among which the first is an awareness that has been initiated with the hyper-innovation stage kickstarted by the sharp rise in the popularity of the ICO. The next and present stage is that of institutional adoption which would bring in political, institutional and regulatory acceptance like Facebook’s Libra is trying to do. The next and final stage would be a seamless use of cryptocurrency for businesses and individuals where the use would be a hassle-free experience.
One of the important obstacles is the on-ramp, as changing from fiat currency to crypto needs involvement and interaction with a centralized, regulated entity. One also requires to go through AML and KYC, which tends to make the process more complicated. Cryptocurrency prohibition policies are not entirely user-friendly as consumers are not protected from being misguided or misinformed w.r.t. investment decisions or credit card debt. Banking agencies are not always optimistic towards acceptance of cryptos and have taken measures to protect themselves ‘by not banking cryptocurrencies.’ Many businesses, therefore, find difficulties in bridging fiat and cryptocurrencies due to a lack of trustworthy custody partners.
The regulation of cryptocurrencies leaves much to be desired as they need better regulation for greater use and adoption and not restrictive and suppressive ecosystems that put several limitations that hamper their operation. China is one such country which has come down heavily on cryptocurrency trade with foreign exchanges and has taken steps to limit its use as it has plans to introduce its own digital currency. Even some western countries have not been very clear with their regulation policies as most lack sufficient knowledge of the technology to put in place proper regulations. USA has also taken a long time for this purpose in contrast to small nations like Malta, which has taken the lead in the creation of a legal framework and a regulation ecosystem that has accelerated the growth of cryptocurrencies.
Although awareness has been created, education and proper knowledge w.r.t. use of cryptocurrency still lacks, like many do not understand the difference between blockchain and cryptocurrency. Often these seem to be abstract concepts and creates inhibitions in learning about them which in turn discourages users from setting their foot in this field. Initiatives like Coinbase Earn should be encouraged that offer free cryptocurrency in lieu of viewing educational content and performing educational tasks. Major exchanges can launch such initiatives to spread greater knowledge about cryptocurrencies.
Another obstacle is the lack of ease of use, where the average user has to manage both the private key and his funds. Scorched Earth vaults, Multisig hardware wallets are efficient but require a lot of work just as remembering or writing down a 64 character seed phrase. Private key management services like IMO would play an increasingly important role as passwords cannot be “reset” in case of crypto transactions. Consumers should be able to buy and sell cryptos without having to take pains for understanding the technological nitty-gritty of blockchain and cryptocurrency, which would make them more user-friendly.
The volatility of cryptocurrencies is another deterrent factor in their mass adoption with concerns like privatization of money with Facebook’s Libra but stablecoins also have the potential to bring in the masses, the unbanked and the poor. However, governments and central banking agencies are against the use of Libra and other such stablecoins.
Security is another issue that has discouraged the use of cryptos, as almost $9 million are lost every day in scams. Cryptocurrency is often perceived to be used by terrorists, money launderers etc. because of lack of safety and authority. Anonymity and decentralization make it tedious and almost impossible to track fraudsters or punish defaulters, which is one of the main reasons that governments are not open to their use.
In order to bring cryptos into the mainstream, they also need to be integrated into wallets of existing products that companies like Robinhood, Revolut, Square etc have done. If multinational corporates like Google, Facebook, Apple and others integrate cryptocurrencies, it would certainly spark their massive adoption into the mainstream, here acceptance of Facebook’s Libra can be a starting point.
Thus cryptocurrencies need to resolve these issues before they can be adopted on a massive scale and brought into the mainstream. Governments would also play an important role here by helping to build a cryptocurrency-friendly environment. Cryptocurrencies should also evolve technologies that can be used by the average consumer so that they do not stumble in the journey from ordinary to digital currency but enjoy a smooth ride with cryptos.