Cryptocurrencies have gained attention in recent years, especially due to the pandemic. More and more people, institutions, and even governments are joining in the conversation as time goes by. In this article, Konstantin Anissimov, Executive Director at CEX.IO, delves a little deeper into the world of crypto payments and asks just when we might see them as an everyday reality.
In a little more than a decade, cryptos went from being completely unknown to being a hot topic in nearly every country around the world. New discoveries lead to a new interest, which once again, leads to investing and popularity of digital coins.
Nevertheless, while cryptos did become a very popular alternative to traditional payment methods, they still seem to be far away from being used in everyday life.
Why is that? Why can’t we just go to the store or a cafe and use them to pay for goods and services, even now, in the mid-2020?
The conditions are not right yet
The biggest reason why cryptocurrencies are still far from being used in such a way is the fact that physical conditions are not adequate enough. In other words, if we were to use cryptos in such a way, we would need a completely new, crypto-friendly payment ecosystem.
Such an ecosystem, however, still doesn’t exist. We are starting to see its beginnings, but the final product, necessary for cryptos to be used as easily as fiat currencies, is still some time away.
What is preventing the ecosystem from being created?
Actually, there is an entire list of reasons why cryptos haven’t seen the creation of such an ecosystem yet. For example, the crypto industry still remains largely unregulated or poorly regulated. Their legal status differs from country to country. For example, in Japan, crypto can be used freely in a variety of ways, but in China — just across a small body of water — even possessing crypto is barely allowed. The regulation within each country is also turbulent which leads to a weariness of accepting and utilising cryptocurrencies due to the lack of stability and increased regulatory risk.
In the US, only a handful of cryptos are actually considered real cryptocurrencies, while the US SEC considers many of them to be securities.
This is because most cryptos are not in compliance with the standing regulations, and the fact that the cryptocurrencies, as well as the underlying technologies (proof of stake, DeFi, etc.), are constantly changing and evolving makes it harder for the regulators to agree on crypto-specific regulations. And without a clear regulatory framework, compliance is very challenging.
Without compliance, traditional financial environment — central and commercial banks, major payment systems, and alike — find it very hard, if not impossible, to deal with the crypto industry.
This is a problem, as their participation is necessary for the creation of an ecosystem, and without the traditional financial institutions like banks becoming fully acceptive of crypto, the complete ecosystem is not yet ready to emerge.
The idea of using crypto in everyday life was around for quite a while. The ICO craze from 2017 proved that, with countless projects offering credit cards that would use crypto for making payments.
The concept itself is easy to understand — a project would get a credit card, which represents an element from the familiar, traditional finance industry. It would also combine crypto and blockchain tech, which is a new element. The bridge between traditional and new economies would, thus, be made, and the problem solved, right?
Well, not exactly.
The process requires numerous participants to be interested in working with crypto, such as payment network schemes like Visa and Mastercard. Then, there is the matter of banks who did develop an interest in crypto, but due to the lack of regulations, still cannot embrace crypto-related businesses and transactions fully.
Recent news from both MasterCard and VISA embracing cryptocurrency processing as well as some banks getting actively involved, like JP Morgan, are large crucial steps forward, and I believe that even more new projects will start to emerge now, which will likely lead other participants in the ecosystem to accept cryptocurrencies.
Finally, you would also need merchants who would accept crypto payments. This might be the easiest issue to solve, provided that banks and card providers come up with the technology that would transfer crypto to fiat quickly.
However, another problem emerges when it comes to selecting which cryptocurrency to use. Coins like Bitcoin, which are approved by the regulators, are too slow, as it takes over 10 minutes for the transaction to be confirmed. This is simply too long to be practical. Faster projects could be used, but there are a number of other issues, such as the fair exchange rate, optimizing the conversions back to fiat in order to manage the firm’s finances, and more.
As you can see, there are plenty of obstacles blocking the way, and they all need resolving in order for crypto to ever become a quick and easy payment solution in the real-world environment.
Changing the mindset
Lastly, there is a matter of consumer trust. Many are still sceptical of cryptocurrencies and distrust this new form of money.
Cryptos are different from traditional finances, as people need to manage their funds themselves. It is all digital, and there is no cash form of crypto, which makes it completely new to a lot of people, and anything new is usually received with an element of distrust. In addition to this, cryptocurrencies are not backed by any government, central bank or gold reserve, which again is a novel concept for many.
Becoming more accepting of digital coins will require a change of mindset. This, I believe, is already happening with better regulation, central bank digital currency initiatives, large adoption of crypto with the institutional and professional investors and many other individual shifts.
Seeing the potential
Cryptocurrencies have great potential, that much is not being questioned. However, in order for them to become something more than a niche, multiple conditions still need to be met.
The best way to go about it is to erase the boundaries between traditional and digital finance, and this is already happening. Many governments around the world are accelerating their interest in crypto, regulation is advancing and traditional finance counter-parties who are crucial for seamless ecosystem operation are becoming more and more accommodating to crypto. In doing so, they are all helping with bridging the gap between traditional and crypto finance industries.
Cryptocurrencies are undoubtedly a new form of money, backed by a new generation of financial technologies. In my opinion, the main challenges have already been overcome and it is now only a matter of time before the separation between the traditional finance and crypto vanishes. The blockchain technology will revolutionise many more industries, though a smoothly working cryptocurrency ecosystem will definitely prove this to the masses and act as a catalyst for innovation.
