Why Are We Not All Using Cryptocurrency Already?
The challenges of mainstream cryptocurrency adoption go far beyond just the technical.
Having spent a career in technology innovation and seen technology come and go, it’s seldom just the technical that leads to its demise. Equally, what technology innovations succeed can also surprise for the reasons they do.
The nature of cryptocurrencies mean they span across multiple domains. Look, we’re dealing with upsetting the nature of money. Cryptos, both in how they are created and used push up against some of our biggest and most complex institutions that include governmental and financial. They challenge some deeply embedded societal norms. Remember, for example, with cryptos we don’t need banks and a whole army of financial intermediaries are eliminated. It’s disruptive and as a result it’s only logical that there would be pushback, or at a minimum caution from a variety of enterprises.
Cryptos risk delayed broad acceptance or at worst: legal and regulatory rejection. In addition, what we’re experiencing right now at a macro level is a test of societal acceptance.
Is the public at large ready to embrace cryptocurrencies? Fundamentally this may be the biggest challenge.
What makes cryptocurrencies work and have value at all in the mainstream is predicated on two assumptions: (1) That people are prepared to accept them as legitimate currency and (2) That if a crypto is traded, the next person is prepared to pay the same or more that the seller paid. This later is responsible for the sky-high prices for cryptos such as Bitcoin and Ether in the past few years. So, if neither of these assumptions are met, cryptos are essentially worthless. Just bits on a hard drive.
Fortunately, to date, cryptos have found a willing, but limited populace. The success of Bitcoin has inspired thousands of alternatives or altcoins. On the one hand, this clearly suggests some credibility to a crypto-future, but if we’re sufficiently skeptical, it may also be a consequence of irrational exuberance. That is, the fundamentals to support the enthusiasm behind thousands of cryptos may not exist. The risk is therefore that any crypto you purchase with fiat currency could conceivably fail and be worthless a few hours later. Sure, that’s already happened, albeit investors got longer than just a few hours. We call these dead coins and there may be as many failed as still in circulation. Still, a core set of cryptos including Bitcoin, Ethereum, Ripple, Litecoin, Peercoin, and several others are thriving.
Beyond the technical challenges, an owner and user of cryptocurrency assumes risks that traverse areas such as massive value fluctuations that can happen over minutes. There is also an inability to quickly liquidate funds — after-all, if everyone tried to cash out a certain crypto to fiat currency, there’s no substantive mechanism to achieve this. There is no safety net if something bad happens, no one to step in and help. The environment is susceptible to sudden regulation including prohibition. For example, several countries have banned a form of fundraising with cryptos known as initial coin offerings or ICOs.
Finally, the current cryptocurrency world is relatively complex. It’s not easily accessible to everyone yet. It’s takes some homework and effort. That said, it is getting easier. To really see cryptocurrencies, succeed, society will need to embrace them and that will require ease of use. If this happens, the entry barriers to participating in the cryptocurrency universe will drop considerably. Broad adoption would presumably result in supportive regulation. Crypto winners will emerge and that will mean the unpredictability will begin to fade. All manner of businesses and organizations will accept crypto as payment and a mature marketplace will emerge.
It’s all possible and even likely, but we’re not there yet.
This excerpt is taken from my online video series, Securing Cryptocurrencies. If you enjoyed it, check out the full video series here: