Over the years, there have been many innovative technologies and products that have thrived, emerged slowly or ultimately died as a result of how they were adopted by the wider market.
Bitcoin has made significant inroads to changing the way the world thinks about finance and technology, along with other coins that have also made a valid contribution.
However, most see Bitcoin and other blockchain-based technologies as individual currencies – when, in fact, they should be thought of as open finance platforms. As the Bitcoin expert Andreas Antonopoulos aptly put it, ‘This is not just money for the Internet. This is a new Internet of money.’
Currently, Bitcoin and other cryptocurrencies are still in their infancy and early adoption phase, even after 10 years of Bitcoin’s existence. In order for crypto to really take off – adoption is going to be key and this means four key areas need to be satiated in order to do this: education, application, security and regulation.
The simple fact is the majority of the world still has no idea what Bitcoin or blockchain-based technologies actually are, and this represents a real problem, particularly when many live by the adage of ‘don’t invest in what you don’t understand.’
When conducting a search for Bitcoin or blockchain on the internet, you’re likely to find the following definition:
‘Bitcoin is a digital currency that’s not backed by any country’s central bank or government. Bitcoins can be traded for goods or services with select vendors.’ Whilst succinct hardly the most comprehensive answer!
Additionally, while blockchain technology and crypto may appear simple to those within the sector or with a tech knowledge-base, for many the market is seen to be rather opaque, difficult to understand and full of technical jargon.
All of which make it a tough alternative to challenging existing embedded processes and norms. Essentially, education is an easy and palatable manner and ensuring market understanding is vital to assure future adoption.
It’s important this becomes a key personal responsibility for those of us already within the sector.
The quote that Bitcoin can be traded for goods and services is true, but perhaps not as widely accepted as it suggests. Essentially, adoption will be in part driven by an understanding of real-world application for blockchain and cryptocurrency relative to each individual’s needs and the benefits that it will bring.
There are some technology platforms, like Wirex and Cryptopay, that let clients use a debit card against held crypto holdings – offering a number of currencies like Bitcoin, Ethereum and Ripple.
These are good solutions for now, but the prices offered on such platforms can sometimes be some way off the real underlying token/coin price. Additionally, these platforms can pay for goods and services with these cards but they are some way off being fully-fledged platforms where you can pay direct debits or buy larger priced items like cars or houses.
The application question will also be helped by solving the ongoing topic of scaling which so far seems to be holding back broader adoption. It’s hoped that advances like the Lightning Network will help solve this issue.
For it to be able to be used within the mainstream – the number of transactions per second needs to be addressed and improved.
Bitcoin stands at seven per second, other currencies like Litecoin, Bitcoin Cash and Ripple allow far more than this – but all are far lower than Visa’s 24,000 per second, which is a very widely used platform. It’s estimated that the Lightning Network for Bitcoin will have the potential to process 1 million transactions per second, however this is still theoretical at this stage as the network requires adoption for it to process transactions at that speed.
There have been a number of well-publicised stories of theft within the sector since its inception which have resulted in negative outcomes for those involved along with some pretty crucial learning.
These scenarios, along with the all too easy regurgitation of negative connotations about the sector such as it ‘being rife with money launderers and criminals’ has meant a huge amount of caution is being taken from potential investors before they enter the sector to be assured that their funds are secure.
A key point to note is that while there have been many cases of cryptocurrency exchanges hacked and private keys stolen, the actual blockchains of the likes of Bitcoin and Ethereum have never been hacked.
The best analogy for this would be leaving your wallet at a cash point with your bank card and pin code inside. The actual cryptocurrencies themselves are near impossible to hack, but stealing them from exchanges or wallets is another thing altogether
The interesting thing here is that when time is taken to explain how much analysis can be done on individual assets to trace their chain of transactions and thereby effectively ensure they are ‘clean’ [something that’s almost impossible to do with fiat currency] and when there’s a rational realisation that money laundering has been around well before the blockchain, then you find the softening of preconceived notions.
The final strand towards adoption, would be improved regulation within the sector. After the last major move down in crypto prices, it was a commonly-held notion that the catalyst for the next move back higher would come from institutional activity. It was recognised for this to happen, more regulation would provide that comfort.
There’s been much speculation surrounding the approval of an ETF by the SEC, which would bring inevitable mass interest in crypto. Separately, the FCA in the UK will be producing its first set of guidelines on the sector in the second half of 2019.
With these measures, blockchain and crypto immediately gains legitimacy in the wider market and will then result in better protections for the retail part of the market.
If these four bases are covered and adoption picks up, what will happen to prices? One would assume as demand outstrips supply, prices will increase which is great news for early investors. However, the tricky part is ensuring the infrastructure is there to support it.
Either way, adoption is going to be critical for how successfully this market develops in the future and it’s important existing market participants don’t lose sight of this.