Cryptocurrency has the potential to simplify buying and selling, uniting transactions across borders in a system more secure than any available today. The current cryptocurrency landscape, however, is largely focused on speculation. Instead of working to discover what problems cryptocurrency and blockchain technology can or can’t solve, investors see crypto as a purely money-making venture based via the speculative market.
There are companies that understand the value that cryptocurrency can bring to world markets and are working on developing crypto solutions to real-world problems. But widespread usage is still hung up on a couple of issues.
To begin with, no type of cryptocurrency, as it exists today, can keep the promises that developers have made about the innovation. It doesn’t matter if it’s Bitcoin, Dash, Ethereum, or something else, cryptocurrencies have too many imperfections to work as intended: to be a functional peer-to-peer electronic cash system used for anonymous internet transactions that require no centralized third party, such as a bank or government. Widespread use of cryptocurrency, as if it were money in your wallet, won’t happen until the choices on the market improve.
But Bitcoin Is So Shady...
Many people’s understanding of cryptocurrency begins and ends with Bitcoin, which is commonly associated with both investment scams and the drug world. Why? Well, the collapse of bitcoin exchange Mt. Gox, which cost investors billions, was the first time news media gave bitcoin widespread attention. The rise and fall of Silk Road was also highly public, and so bitcoin has a history as a tool of drug deals and other criminal activity because of the anonymity it purportedly offers.
Bitcoin has gained more credibility but remains stained by this early association. Cryptocurrency, according to public perception, isn’t safe for honest people even when it isn’t being used to launder drug money. Countering these notions about cryptocurrency is a difficult battle, but one in which we’re already seeing incremental gains.
When trying to move beyond these first impressions, it’s helpful to remember that fiat currencies have also been used in committing crimes, or have been outright stolen, for as long as they have been used. We all still use cash, despite its association with drug dealers. When Lehman Bros. went bankrupt and sparked a global financial crisis, nobody faulted the U.S. dollar itself.
In addition to image problems, individual cryptocurrencies suffer from practical limitations on how they can be used outside of the speculative market. Let’s look at retail as an example. Could a retail merchant feasibly accept Bitcoin via a mobile payment app? Bitcoin can handle seven transactions per second. That’s its limit. By comparison, Visa typically does 15,000 to 20,000 transactions per second and scales up to about 45,000 transactions per second. Bitcoin, as constructed today, does not have a snowball’s chance to become a widely used crypto retail currency in the U.S. — or anywhere, for that matter. With those limitations, there is no reason to buy bitcoin, at least not as a consumer.
Other currencies, like Nano, can do the instantaneous transactions that bitcoin can’t; where bitcoin runs like a Model-T, Nano purrs like a Ferrari. Nano can process free, instantaneous transactions at the same rate as Visa. But that’s all it does: handle transactions quickly.
Speed and volume are important, but Nano denies the capability of putting controls on the transaction. Dash also marketed itself as able to process transactions quickly and seamlessly, but it has no reach with merchants. It’s just not convenient for consumers.
Nano and even Dash would make it easy to buy a stick of gum, but if you want to buy a house or conduct a more complicated transaction, they are not very useful. Ethereum fills that gap by bringing smart contracts to crypto, which added guidelines and restrictions that regulate how the money is released after the transaction. If you want to create an escrow account or a stipulate delivery of services with cryptocurrency, Ethereum can handle it. However, its smart contracts reportedly have significant security issues.
Barriers to Merchant Adoption
Of course, some of the most significant barriers to widespread retail adoption have less to do with the currencies themselves and more to do with the lack of a network for transactions. As it stands, merchants would have to take too many steps in order to accept crypto as a retail currency.
For one thing, the prices on the cryptocurrency market are volatile enough that merchants need to factor that into their pricing. If merchants sold shirts for $10 at one moment, for example, they might find that by the time they get to the exchange, the price of Ethereum or Bitcoin had dropped, potentially halving the value of the sale just made. Then, too, the merchant will have to take all the steps necessary to make the exchange and cover all transaction costs.
Right now, it’s too cumbersome to accept cryptocurrency, so merchants simply don’t. Cryptocurrency, in its current form, just adds to the burden of running a business. With the right networks and coins, however, it could do the opposite and possibly even have merchants clamoring to accept it.
Close the Gap
No cryptocurrency network that currently exists features a mechanism that will get consumers to pay for it — or merchants to move over. The companies that produce the cryptocurrency make superficial marketing pitches about what their coins can do and what functions they have, but in the end, most companies aim to maximize profit.
To be clear, there is nothing wrong with making money, but cryptocurrency has yet to fulfill its potential. A productive approach, combined with stakeholder buy-in and consumer demand, has the potential to transform the retail landscape.