Can crypto ever take off as a mainstream currency?

In just over a decade, cryptocurrencies have enjoyed remarkable growth. We’ve all heard the story of the crypto miner trading 10,000 bitcoins for two pizzas back in May 2010. Today, those same bitcoins would be worth around $391.7 million—that’s some expensive mozzarella.

But it’s these unpredictable peaks and troughs in value that make cryptocurrencies a highly volatile investment. The value of fiat currencies is typically determined by economic growth and interest rates. But for cryptocurrencies, value lies in the relatively unknown.

Even so, they’re fast entering the mainstream. 15.5% of the world’s population now owns crypto, consultations are launching into a government-backed ‘Britcoin’, and currency exchangers even bought up multiple ads during the 2022 Super Bowl’s coveted commercial breaks.

It’s time to explore the mystery behind cryptocurrencies, what gives them value, and whether they’ll ever replace regular currency. Could bitcoin become a credible, day-to-day medium of exchange, as opposed to an unstable store of value? Let’s investigate.

Pinning a real value on crypto is tricky

We know crypto is limited by supply and demand. There’s only a certain number of bitcoins, 21 million, that can ever be mined, for example. And like gold or real estate, this scarcity drives demand and price.

But right now, cryptocurrencies are primarily speculative assets, with most investors gambling on their value rather than using them to purchase goods and services. Unknowns surround crypto’s long-term viability as a meaningful medium of exchange, too—you wouldn’t buy your groceries with a currency that could soar in value the next day. Tokens like Bitcoin are also used for illicit payments, to the tune of $14 billion in 2021.

For these reasons, financial services companies are still reluctant to embrace crypto. The industry is still maturing, and lawmakers are trying to figure out how to police it without stifling development. So, what needs to change for crypto to move forward?

Without regulation, there cannot be true progress

Currently, cryptocurrencies operate via ‘decentralised control’. This means they aren’t issued by a central bank or regulated by a government and are free to develop without regulatory supervision. And while this allows for unfettered innovation and user anonymity, it can also leave crypto as a hotbed for speculation, scams, and market manipulation, offering investors little control or protection over their assets.

Regulations are now crucial for the industry’s long-term success, promising market stability, investor confidence, and a safer ecosystem. However, what exactly these rules should entail is still up for debate.

A lack of international cooperation means country-by-country laws will likely surface. This offers huge potential for freedom and prosperity in emerging markets with little access to the global financial system. Take Africa, which already boasts six countries within the top 20 for crypto adoption.

Meanwhile, central banks are considering issuing digital currencies (CBDCs) to enable fast monetary policy changes and a clearer view of overall financial health. CBDCs will help to slash the costs involved with moving fiat currency between banks, companies, and consumers. However, current progress is slow. Only if a pre-defined international monetary policy emerges, with financial instrument representation that offers equal footing for all participants, will we see wider opportunities for global commerce.

Banks must decide how to engage

The current process for moving cryptocurrencies around is inefficient and slow—it takes around ten minutes to validate an average bitcoin transaction. But with crypto’s unique ability to have programmatically financial instruments, the technology emerging upon that infrastructure is enabling various new use cases. 

Networks like Lightning are beginning to enable instant payments and scalable transactions, creating opportunities beyond the original foundations of cryptocurrency. For financial institutions to avoid losing ground and market share, they must create more financial instruments based around crypto. 

From custody services, to additional investment options, or even a credit system based on collateralised crypto loans, the technology opens up transformative new services that traditional banks can monetise. It’s no surprise then, that institutions like JPMorgan have begun investing in the blockchain, creating digital coins, and even opening in the metaverse.

Looking to the future

For now, buying crypto is primarily speculation, and regulators need to exert more control over assets that can’t be valued in any fundamental sense. The future looks exciting, however.

Some crypto players are challenging the notion that users must be completely anonymous, through ‘Know Your Customer’ and anti-money laundering processes, to appease concerns about criminality. These steps, coupled with a known regulatory regime, will help banks and consumers readily embrace the undeniable benefits of crypto.

Then, the potential is huge, with cryptocurrency finally serving as a viable medium of exchange. In theory, increased adoption will reduce volatility and create a virtuous circle. And while this will take a lot of time and buy-in, its near-inevitability means that those who prepare now stand a strong chance of mastering the future of crypto commerce.