First there was hope that Bitcoin would replace fiat currencies and offer a secure global payment solution. Then, as Blockchain technology evolved, interest switched to the potential applications of digital ledgers. Now, it seems that things have come full circle and cryptocurrencies could actually be on their way to replacing the way we currently pay for things. According to a recent study carried out by Imperial College London and overseen by trading platform eToro, there are six steps cryptos need to complete if they’re ever going to become standard currencies. Let’s take a closer look at what the research showed.
Traders Keeping Cryptos Popularity High
As it stands, the driving force for the likes of Bitcoin, Ethereum and Ripple are traders. Often using brokerages, investors are taking advantage of the current swell of interest in cryptocurrencies. However, to become a valid long-term proposition in the same way that forex currently is, the leading crypto coins will have to prove their utility. According to Imperial’s Dr Zeynep Guruc, cryptocurrencies need to pass the following tests: scalability, usability, regulation, volatility, incentives and privacy.
For Guruc, the concept of money is one that’s ever changing. Throughout history, the manifestation and our perception of money has changed. From the days when anything of value could be used as a payment method to the evolution of coins and then bank notes, financial tokens are constantly changing.
“New payment systems – or asset classes – do not emerge overnight but it is worth noting that the concept of money has evolved – even in our lifetime – from cash to digital or contactless payments. The wider use of cryptocurrencies and crypto-assets is the next natural step if they successfully overcome these six challenges,” Guruc said in the report.
The Evolution of Money Continues
With this as a precedent, Bitcoin and its peers already have a blueprint for success. In fact, one of the main reasons Guruc and eToro are positive about the future of cryptos is their cross-border utility. As per the six-step criteria outlined in the recent report, scalability and usability are the first two tests an emerging currency must complete.
Already, Bitcoin has shown that it can exist on a global scale and provide a single payment solution for people in multiple countries. Under the current system of exchanging fiat currencies across borders, the process can be time-consuming and expensive. Overseas transfers involve the act of converting one currency to another and exchange rates, as well as multiple parties. When more than one entity is required, processing times increase. Because each bank and financial institution has its own workflow and internal processes, consumers are at the mercy of a fractured system.
In contrast, Bitcoin payments are conducted over a single network. What’s more, because each user owns the same currency with the same universal value, the act of sending coins from one country to another takes no longer than local payments. In this regard, the researchers believe that cryptocurrencies have already shown that they are scalable and useable.
Beyond this, the third test, regulation, is one that governments and tech experts are currently trying to address. At this stage, crypto regulation is piecemeal at best. Japan has started to formulate its own rules and regulations with regards to cryptos, while South Korea has done the same. In the US and the UK, regulators have been happy to describe Bitcoin, Litecoin et al as legal tender but want to ensure ICOs are properly controlled.
Adoption Is Almost Inevitable
What’s encouraging for crypto enthusiasts is that governments are starting to move beyond blanket bans. The International Monetary Fund (IMF) has called for greater cooperation on the issue, while G-20 leaders are eager to develop universal policies. In practice, regulating and controlling a universal system designed to be free of a central authority won’t be easy. However, if politicians are willing to work with developers and businesses, a set of standards could easily be achieved. If that happens, cryptocurrencies would be well on their way to replacing fiats.
A complete switch is unlikely to happen within the next decade, if at all. However, with more than 3,000 Bitcoin ATMs spread across the world and a growing number of businesses starting to accept crypto, things are changing. For Dr Guruc, seeing Bitcoin and altcoins on the high street by the end of the decade is a distinct possibility. The future for cryptocurrencies remains unclear but, for many, it’s expected to be a very positive one.