The concept of money has come a long way since humans invented trading – from the tally stick to paper cash and now plastic debit/credit cards. It would seem that the next natural course for the economy is to move to cryptocurrencies which are set to disrupt the traditional monetary system.
But are they competent to carry out such a revolution?
First of all, it is crucial to understand that for anything to successfully function as a currency, it needs to fulfill the following three primary requirements:
- be a medium of exchange;
- be a unit of account;
- be a store of value.
Technically speaking, cryptos have a huge potential for replacing fiat money. They are a measure of value (though volatile) and some of them – like Bitcoin – are already being used as a medium of exchange. Yet, the digital currencies continue to experience a low adoption rate. Here are the major factors influencing skepticism toward the tech.
Lack of Specific Regulations
Whether we like it or not, the crypto space needs to be regulated. At the moment, there are many interested parties in the game, but the market looks pretty messy due to lack of regulations. It is the main cause of high volatility and why many investors are too afraid to put their money in this industry.
If the regulation ever happens, clear rules will assure businesses that they are operating within the legal framework by adopting cryptos. This will further boost the trust of consumers and trigger mass adoption. The healthy regulations would also motivate responsibility and discourage malicious market players.
Scams and Lack of Trust
Bad news spreads like wildfire. It’s no wonder the media is filled with stories of blockchain networks being hacked and people losing their money. And once again, a lack of proper regulation backbites us on this one.
Without insurance policies and proper rules and guidelines on most exchanges, your money could be safe one day and gone the other – like the case of Mt. Gox, Bitfinex, and DAO.
There’s also the issue of ICO scams. One such case was OneCoin, arguably one of the most sophisticated Ponzi schemes in history.
The crypto space continues to be filled with malicious parties that are constantly working to steal money. Even those who are tech-savvy could fall victims, but it is the newcomers that feel the gravity of this situation the most.
In a store of value, volatility can be dangerously off-putting. This is an emotionally-driven market with little to no regulation and high incoming capital. As such, cryptocurrency markets have become famous for overnight double-digit fluctuations in value and elaborated “pump and dump” schemes.
It doesn’t mean that traditional financial systems such as banks do not face these challenges. It’s just that the volatility of crypto assets is too high and this hampers adoption.
How can we ensure adequate market reliability while maintaining the lucrative growth potential of cryptos? There are many solutions in play already, but this challenge is a very delicate one. Only time will tell what works best.
Lack of Clarity/Awareness
The situation seems to be improving steadily but not fast enough. Cryptocurrencies are a relatively new industry and as such, suffer from the lack of reliable information. One moment blockchain is immutable and the next we read that it isn’t. Bitcoin is anonymous, but again we discover that it is not as anonymous as previously stipulated!
Add to this that the mainstream media still lack proper understanding of the crypto space. What’s more, there is the constant threat of fake news which aims to devalue specific cryptocurrencies and manipulate the value of the others. Such lack of clarity combined with regulatory indecisiveness threatens to crash the massive adoption of cryptocurrencies.
However, the good news is that some countries are making a significant effort towards providing the necessary information to the general public. Malta, for instance, launched programs to educate its citizens, especially those who might have to use the tech on a daily basis – like government employees. PhD programmes related to the same subject have also started emerging over the last two years.
Too Many Cryptocurrencies
Another downside to the cryptos is their number – nearly 2,100 (December 2018). They all have different values and are created for different purposes (general trading, banking services, IoT, gaming, etc). With them, people can buy and sell services within a specific niche.
This can all be pretty hard for newbies to start their crypto journey. How does one choose the right cryptocurrency? How can one tell if its value will increase or diminish? How and where could one buy or earn it? Is it possible to mine it? These are just some of the doubts that put off many potentially interested people from investing in cryptocurrencies.
To sum up, even though things might not look bright for the crypto world at this moment, remember that until few years ago you had no idea that they existed. That said, their acceptance is on a steady rise, and we can only expect them to increase in value and adoption rate over time.