Cryptocurrency, blockchain and crypto payments have been at the forefront of talks for the ‘next big thing’ in technology for the past few years. With the Bitcoin boom experienced in late 2017 and the unprecedented amount of money spent and invested in countless blockchain development projects, it is safe to say that more attention has been given to cryptocurrencies than ever before.
More books have come out in recent years regarding blockchain and crypto have the word ‘revolution’ in their titles than you could even count. If this technology is so revolutionary, money-saving, time saving and as game-changing as so many experts and pundits seem to think, how come it has not become mainstream? How come crypto payments are not accepted everywhere the way fiat money is and why is it that no one is spending their cryptocurrencies in day-to-day payments? This article will explore some of the reasons why cryptocurrencies aren’t used in everyday life.
At the time of writing, Bitcoin is by far the largest cryptocurrency by market cap ($130 billion), and with millions of people holding Bitcoin, why aren’t more people spending it in their day-to-day activities? One reason experts assert is that Bitcoin and other cryptocurrencies that operate on a proof-of-work consensus algorithm has a scalability problem. In essence, the scalability issue comes down to the number of transactions a particular blockchain can process in an amount of time — for Bitcoin and Ethereum it 7 transactions per second and 15 transactions per second respectively. This number is low and is nowhere near the number of transactions they would have to operate to support mass use by people around the world. To put it into perspective, Visa the financial services giant processes on average 1700 transactions per second (150 million per day).
Other so-called cryptocurrencies that exist today claim they can process thousands of transactions per second, such as with EOS who claim a whopping 4,000 tx/s. But dig a little deeper and you see that most, if not all, of these blockchains, are incredibly centralized, much like a bank and offer nothing more than being an intermediary for verifying your transactions. We argue that this centralized aspect of these ‘cryptocurrencies’ should disqualify them from being a cryptocurrency in the first place.
To become a truly mass used cryptocurrency, we believe that a cryptocurrency should possess three aspects: scalability, security, and decentralization. This is what’s called the ‘blockchain trilemma’ coined by Ethereum creator Vitalik Buterin, who asserts that there is no blockchain network that possesses the three aforementioned aspects simultaneously. We also believe that if such a blockchain were to exist, the criteria for a cryptocurrency to become mass adopted and used in everyday life would be met.
If you are reading this article you are probably aware of the blockchain boom in late 2017. The price of Bitcoin reached an all-time high of $19.5k and other cryptocurrencies experienced a similar spike in price. If you paid close attention to Bitcoin prices this year, you can see the price started off at $3.8k in mid-January, reaching an all-year high in June at $12.9k and at the time of writing is worth $7.1k.
What does this tell us? This tells us that the price of Bitcoin and other cryptocurrencies that have similar patterns in prices are extremely volatile, this is especially true when compared to world currencies or value storing commodities such as gold. When this level of volatility exists, many regular people become wary of investing or holding such assets. Furthermore, vendors and users alike would rather trade in a more stable currency rather than one that fluctuates on the way many cryptocurrencies do. It makes perfect logical sense for most people to deal and trade in something they are more familiar with, as humans are mostly averse to change, and something that will (probably) retain its current value for many years to come, e.g. US dollar.
Unless cryptocurrencies can prove that their prices can remain relatively stable or inflationary at a steady rate, the way many world currencies are, it will be difficult for most people to place their confidence in it.
Since cryptocurrency is still a very new technology, many of the world’s governments are still grappling and debating with the idea of cryptocurrencies and crypto-assets. And because of this, many governments have yet to pass comprehensive legislation regarding crypto-assets. Some countries, such as China have prohibited cryptocurrencies from being used as a method of payment or transaction and have outright banned crypto exchanges, thus placing heavy restrictions on the freedom to use cryptocurrencies. Even countries such as Vietnam and Bolivia have declared that crypto payments are not a legitimate method of payment and made the use of them illegal.
Even countries where cryptocurrencies are legal, such as in the US and Canada, there are Know Your Customer (KYC) and Anti-Money Laundering (AML) policies legislators levy over crypto exchanges. This defeats one main purpose of cryptocurrency, which is anonymity, to be able to exchange value in a peer-to-peer manner without any intermediary knowing who you are or what assets you hold.
Of course, when governments around the world have such attitudes towards cryptocurrencies and even more have such flimsy legislation protecting/outlining the legal uses of it, people’s confidence in cryptocurrencies dwindle.
Difficult to understand and use
Blockchain technology and by extension cryptocurrency is not the easiest thing in the world to understand, in fact, it is quite the opposite. Being such a new technology in its infancy, many people around the world have yet to grasp the concept of a distributed ledger which is broadcasted on a decentralized network connected via cryptography. Even the great American investor Warren Buffett has refused to invest in Bitcoin or any other cryptocurrency saying,
“Never invest in something you don’t understand.”
People often avoid the unknown and as mentioned above are very averse to change. Educating people on what cryptocurrency is and how blockchain technology protects their digital assets is far more difficult than just convincing them to trust an institution, such as a bank, in which everyone understands how it works to protect their assets and become a verifying intermediary for their transactions.
At the moment, an ecosystem does not exist for regular people to buy cryptocurrencies and spend it in a manner just as easily for everyday goods. According to icomaking, only 8% of American adults own crypto money in 2019, meaning the vast majority are not having access to it. Also, simply owning Bitcoin or some other crypto does not mean you can go to any coffee shop close to you and buy a cup of coffee or go to your local convenience store to buy some groceries. This is the simplicity and ease that is lacking in crypto payments, unless people are able to spend their cryptocurrency without any hassle, in a similar fashion to tapping your card/device on a PoS machine to pay for your purchase everywhere, people will not migrate to this technology. The point being, such an ecosystem must exist before people start using crypto payments en-masse.