Cryptocurrencies are expected to become a mainstream payment solution within the next decade, a new research has proposed. The paper argues that cryptocurrencies are already fulfilling one of the three functions of money – they are acting as a store of value – and that it is only a matter of time before they begin to fulfill the other two. Money has evolved over time to meet changing needs and the rise of cryptocurrencies is just a natural progression in the monetary system. The research was conducted by the Imperial College London, a leading university in the UK, in partnership with London-based trading giant eToro.
For full disclosure, the research was commissioned by eToro and was spearheaded by Professor William Knottenbelt from Imperial College London. Titled “Cryptocurrencies: Overcoming Barriers to Trust and Adoption”, the research delved into the current use of cryptocurrencies in the economic setup and the factors that have hindered the mainstream appeal. While they act as a store of value in their current state, cryptocurrencies must address challenges such as design, scalability and regulation to act as mediums of exchange and units of account.
The accompanying report further argued that cryptocurrencies are a natural progression in the ever-evolving monetary system. In the early days, barter trade was the accepted form of payment, later being replaced by coins and notes. Payment cards later took over and are now being slowly replaced by mobile payments and cryptocurrencies as people seek convenience. While the payment systems have evolved, money’s core functions have remained constant. As long as cryptocurrencies fulfill these three core functions, they “represent a viable technological update to the way we spend money.”
The researchers set out six areas that cryptocurrencies must address to gain mainstream popularity, the first and most important of which is scalability. This issue needs to be given priority, the report said. Another is volatility, while this is common with fiat currencies, cryptocurrencies are currently too volatile for mainstream payments. The incentivization model of most cryptocurrencies is also not sustainable and would need rethinking as some users can easily manipulate the system for their own gains. Further, privacy and the ease of use must be addressed, as well as regulatory uncertainty in the industry which puts off many institutional users.
Cryptocurrencies and the blockchain technology that underpins them have the potential “to upend everything we thought we knew about the nature of financial systems and financial assets”, Knottenbelt said. The professor, whose area of expertise is the application of mathematical modeling techniques to real-life systems, said that the research was thorough and involved the contrasting of cryptos with traditional forms of wealth to determine their applicability. “There’s a lot of skepticism over cryptocurrencies and how they could ever become a day-to-day payment system used by the man on the street. In this research, we show that cryptocurrencies have already made significant headway towards fulfilling the criteria for becoming a widely accepted method of payment.”
Cryptocurrencies are evolving faster than other landmark inventions, eToro’s managing director Iqbal V. Gandham pointed out. The first email was sent as far back as 1971 but it took over three decades for a user-friendly version to be developed. With Bitcoin having been in existence for only a decade, it has already made inroads into the mainstream payment system, a remarkable fete. Gandham also believes that cross-border payments will be the goose that lays the golden egg. “Perhaps the thing that will ultimately tip cryptocurrencies into mainstream is the issue of cross-border payments. These remain difficult and expensive in many cases. Cryptocurrencis are cross-border by design, enabling wealth to be transferred far more easily. The potential for this to be a leading use case looks very strong.”
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