It’s amazing to think that cryptocurrencies have been around for 10 years now. Public awareness and media coverage only went mainstream at the end of last year when Bitcoin, the most popular and the largest digital currency by market capitalisation, reached a record high in December 2017. Since then, its value as an investment asset has crashed and there have been relentless stories about how crypto has been at the centre of fraud and other sinister activities. Yet despite all of this, crypto has not gone away. In fact, there are clear signs that it may be about to make a comeback.
What is blockchain and crypto?
Cryptocurrencies are different to blockchain and the two are regularly confused. Cryptocurrencies came about due to advances in technology; chiefly blockchain. This is what’s called a Distributed Ledger System (DLT) and serves as a decentralised, secure network that enables cryptocurrencies to function. Due to its design, blockchain technology potentially has many different uses such as smart contracts that we will explore in an upcoming blog.
Why all the bad press?
Much of the negativity around cryptocurrencies came about because businesses and organisations can circumvent traditional routes to raising capital by inventing and selling their own crypto coins. This resulted in an explosion in the number of companies looking to raise money through the process of an Initial Coin Offering (ICO). The practice can be used by startups to bypass the rigorous and regulated existing capital-raising processes. Over $6 billion was raised through coin launches or ICOs in 2017 alone, within the initial first 3 months of 2018 smashing the whole of the previous year. However, many ICOs have in fact turned out to be either fraudulent or just plain terrible investments.
There are now currently more than 2,495 cryptocurrencies on the market with a combined market capitalisation of around $200 billion and new coins are being launched daily. In the last four weeks alone, around 119 new coins have been launched.
Does the world need crypto?
So there is a vast array of coins out there and a phenomenal amount of money has changed hands in trading them. But do normal people actually want to pay for things with crypto?
Many commentators in the financial services industry thought cryptocurrencies would be a fad; something that would only be used by tech nerds or shady characters on the dark web. An overwhelming number of negative comments came from banks who feared they could lose their control over money.
However, digital currencies are beginning to break through with BitCoin leading the way forward alongside other popular tokens such as Ripple. We are starting to see the more established coins attract institutional capital. In their 2017, Global Cryptocurrency Benchmarking Study, The Cambridge Centre For Alternative Finance, reported that the number of unique active users of cryptocurrency wallets is estimated to be between 2.9 million and 5.8 million. Some industry experts believe that this number may have tripled.
The Big Gap
Using Bitcoin as a case study, we can see that more and more retailers are being open to the idea of crypto. In 2017, the number of global physical locations accepting Bitcoin increased by nearly 40%. However, so far this year the growth has slowed to approximately 20%. Although growth in acceptance has slowed, this does still suggest a growing demand from consumers as the dust settles. To build momentum, more needs to be done to demonstrate to consumers that cryptocurrencies are trustworthy, robust and stable enough to be trusted for everyday use.
Today, according to Coinmap, there are currently 13,548 global physical venues that accept Bitcoin as a form of payment for goods and service. While this number is increasing every day, it is still clearly a drop in the ocean compared to the number of transactions that happen using cash and traditional electronic payments.
In theory, there are many benefits that crypto can provide consumers, but it is about having the right infrastructure and regulation in place, whilst proving to all stakeholders that cryptocurrencies have a place in today’s world.
Crypto adoption will take its time, however, new upcoming projects like the development of a new crypto trading platform called Bakkt, developed by the Intercontinental Exchange, has the potential to accelerate adoption with partners such a Starbucks and Horizon Ventures, so you may one day in the near future be able to buy your Pumpkin Spiced Latte with Bitcoins in the near future.
Many governments, including The Bank of England (BoE), have gone on record as saying they are likely to implement their own digital currency at some point in the future. However, Mark Carney, the BoE Governor, has slowed down plans for the UK’s own state-backed digital currency, stating that a central-bank-issued digital currency is not imminent as they currently don’t perform the role of money. It also begs the question as to whether a cryptocurrency issued by a bank is inherently at odds with the de-centralised principles of blockchain and crypto.
The trust issue
The main challenge in the growth of crypto is proving to consumers that crypto is trustworthy, stable and robust enough to be used on a day to day basis for mass consumer payment. Regulatory authorities are slowly beginning to catch up with the continuing advance of cryptocurrencies and implement safeguards for users.
Still early days
Although we are ten years down the line since cryptocurrencies emerged, it seems like these are still early days in establishing real-world use for them. The fact that blockchain and crypto have refused to disappear indicates that 2019 could finally be the year that they begin to emerge for mainstream consumption.