Cryptocurrencies are around for almost a decade now. What Satoshi Nakamoto (the creator of Bitcoin) mentioned in the paper as “chain of blocks” has now become “Blockchain”, a term which has created its own space in every industry in less than five years. In this duration, we’ve seen the biggest and fastest fundraises in the history of Internet companies, fastest unicorn, gold rush and worst bear market, hacks, and mainstream brands launching their own cryptocurrency. All in all, it has been fairly confusing to talk about the future of cryptocurrency with certainty, even for those who are in this space.
A lot of people from around the world are skeptical about the next wave of cryptocurrency adoption and how is it going to happen. We figured that a lack of transparency between the development going on in the industry and the end users waiting for the ‘mass adoption’ to happen is the reason for skepticism. So here is an insider perspective on the growth, adoption, and utility of cryptocurrency in the long term.
The people and companies operating and building new solutions are sure that this new, highly technical, and hard to understand currency is the next big thing. But many outsiders are looking for reasons around ‘why?’ and ‘how?’ this form of currency will be adopted by the masses.
Before we jump into the ‘how?’ and ‘why?’ and the challenges on that path, let’s take a look at some statistics to back that premise.
Number of cryptocurrencies
At present, there are more than 2000 cryptocurrencies in the market. All these coins claim to be better than one another and solve some problems in different industries. The sheer number of alternative coins (other than Bitcoin) launched in the last 5 years show us the number of experiments that have undergone in the space.
The combined market cap keeps fluctuating, which is a major problem. We’ll talk later about the ‘hows’ of it. Forbes estimated the market to be around $290 Billion, as of August 2018. According to Coinbase, it has reached a user base of around 25 Million users and Binance has over 9 Million users now. The adoption has not been a problem in the trading space as the numbers can tell.
Adoption in the business ecosystem
In the last couple of years, hundreds of online companies started accepting payment in Bitcoins — some popular brands are Namecheap, KFC Canada, Microsoft, Subway, Wikipedia, Zynga (mobile gaming), Bloomberg, and Shopify. This year, on February 14, JP Morgan launched their own cryptocurrency named JPM Coin. They are the first U.S. Bank to launch and support crypto openly. Each JPM coin will carry value equal to one USD and it will be utilized to instantaneously settle transactions using the underlying Blockchain.
Traditional Money vs. Cryptocurrency
The adoption by businesses and excitement among the developers, tech evangelists, and crypto experts is not a hollow game. Assuredly, it is not a bubble or a Ponzi scheme either that will die even before it starts to breathe. The existing centralized currency (fiat), the banking system, and political economic forces that govern the creation, circulation, and valuation of money have prematurely optimized the systems. They have also prematurely optimized the technology to give a signal to the end users that it is secure, fast, seamless, and fool-proof, while it is none of that. Optimizing a product to meet the needs without working on technology leads us to a system that is broken but seems functional.
Here are some of the challenges that are making traditional money look weaker in comparison with cryptocurrency. —
Lower Transaction Cost
At present, the banks charge a hefty fee for sending money overseas. The same transaction costs less than 10% if done using cryptocurrencies such as LALA, Rippple, TRON’s TRX, EOS, Litecoin etc. That is negligible.
Seamless cross border transactions
The cryptocurrency works on a decentralized ledger that we call Blockchain. Just like the Internet, Blockchain knows no boundaries. The transactions are instantly settled peer-to-peer. The traditional banking system still takes around a week to make international transactions involving two different currencies.
The cryptocurrency theft, fraud, and hacks are mostly reported as a claim to show that technology is not secure. All those incidents were not a Blockchain hack, but a case of scam and theft to get access to private keys. Privacy keys are passwords that are used to access wallets and accounts on Blockchains and exchanges. The Blockchains are unhackable by design. To alter the older transactions or to make fraudulent transactions, one needs to hack more than half of the computing power that is running the infrastructure. On top of that, the SHA encryptions are the industry standards of cryptography.
Reliable conversion of currency
Cryptocurrencies are the most liquid asset class we’ve invented to date. All the assets can be converted into each other with just one additional transaction. Also, the technological advances like Atomic Swap are making it faster and easier.
Reaching the unbanked and underbanked
To get access to the digital currency, all we need is Internet and a mobile phone. In a country like Dubai, where you need to earn a minimum salary to open a bank account or like in all the banks worldwide you need to keep a minimum deposit to keep the account functioning, there is no such barrier for cryptocurrency. While the traditional banks need physical infrastructure and ATMs, the digital cash has taken a route that it’ll never end up in a disconnected infrastructure that the banks are currently in.
The changes that we are going to see in the mainstream
There are two ways to build products, technologies, and solutions for the future. One way is to predict what’s going to happen by leveraging best of our knowledge and signals to prepare for that. The other way, that is also called the creator’s perspective, is to create a future that we believe is better for all and that is where cryptocurrency is heading. Mainstream adoption is underway, the question is not ‘when?’ but ‘how?’ and ‘who?’. How is it happening? And who will lead the way for brands, banks, and individuals to follow?
The utility payment wallets such as Arax, can be used to pay for mobile recharges, DTH and other utility bills. Everyone can now share cryptos with nearby wallet users on the same wallets to instantly exchange cryptocurrencies and make bill payments. Arax will allow its users to avail services such as Prepaid, DTH, and Data Card top-ups and online recharges offered by different service providers across 140+ countries. These payments are secure, fast, and provides a seamless user experience. We will see more such wallets entering the space to fuel the next wave of adoption.
A surge in the number of tokens
If you think that the number of tokens is starting to saturate, you must look at the 100+ new tokens waiting to come to the market in 2019. The surge in the number of tokens will add to the already ongoing experiments and competition to cater to the larger market.
The biggest change in the ecosystem will be when the traditional money gets routed to the decentralized platforms. The speculative prizes were how the crypto got the kickstart. But in the long run, it will pick a prize that is based on real value and market forces and not on the speculations by traders.
Fiat becoming more lucrative
Till now the fiat currency had no competition. The central banking authorities now, for the first time are facing direct competition from the cryptocurrency. This will put a little pressure on the banking system to bring in better functionalities, efficiency, and technological advancements. As a result global banking institutions have partnered with cryptocurrencies like Ripple or created their own to support faster and cheaper transactions.
Challenges on the path of mass adoption
The cryptocurrencies are considered hostile in some countries. The lack of proper regulations and guidelines are becoming a roadblock for banks, exchanges, and wallet companies to enter the digital cash space. The risks for the government and banks are tracking of wealth, taxation, and control over its supply and demand. The older regulations aren’t robust enough to comprehend the new currency. Better regulations that can assist crypto and at the same time make up for its downsides are the need of the hour for a speedy adoption.
Volatility and speculations
The volatility and speculative prices make it harder to use Bitcoin as a store of value. Numerous stable coins (pegged prices that are immune to market fluctuations) were introduced to tackle these issues. Many institutional investors and individuals who are interested in the technology hesitate from investing in it because of the unstable prices. A better price control mechanism is a must to hold the trust of masses into the crypto space.
Fraud and fraud reporting
People need safety and an authority that can solve their issues when it comes to digital cash. In the decentralized systems, it is hard to track down the defaulters and punish them. Taking responsibility for frauds and reporting them is a tricky role. That’s one of the reasons why national governments do not talk about the regulations openly.
Presently, the continuously increasing variety of crypto tokens coming into the market are enhancing our chances of figuring out the right asset type. Just like the ideology of decentralization, the iterations in the market to refine the model of cryptocurrency is decentralized. With every new token, we get a step closer at building the right one. But the overwhelming choices also stand as a barrier. We can increase the adoption of cryptocurrencies if we use a few standard cryptocurrencies as means of payments in various ecosystems.
No taxi driver in the world completely understands the intricacies of an engine, yet, they drive cars and trucks every day with ease. That should be the case with cryptocurrency too. The introduction of new wallets and other crypto instruments won’t bring adoption until the users can buy, spend, and hodl cryptocurrencies without having to understand cryptography and Blockchain consensus mechanisms.
With progress in development, the cryptocurrencies and fiat will work together, making up for each other’s weaknesses. This is just like the Internet which is everywhere and connects seamlessly with almost all the devices. The cryptocurrencies will be supported by all the payment gateways to make payments and transactions. The digital ownership, loan (credits) processing, utility payments, and cross border transactions are just a few ways that’ll help in reaping most benefits from the technology.
In the long run, traditional e-wallets and crypto wallets will become indistinguishable from each other. The cryptocurrency and Blockchain have certainly found its space in the financial ecosystem, but whether it’ll become the ecosystem itself is still a question that only time can answer. As far as the evolution of terminology is concerned, the way ‘chain of blocks’ became ‘Blockchain’, the ‘cryptocurrency’ may become ‘currency’, soon.