Do people still use cryptocurrencies?
- 06 Nov 2019
- Technology & Innovation
Cryptocurrencies are a digital asset, that unlike cash, leverages blockchain technology to allow users immunity and transparency from central bank and government regulation. The first cryptocurrency, Bitcoin, was created in 2009 and has since grown exponentially in value and popularity – with over 4,000 altcoins (alternative cryptocurrency) being traded today.
However, since cryptocurrencies were first launched there has been a lot of skepticism about how they will be used and what their role will be in society.
In this article, we’ll explore the evolution of cryptocurrencies, what they were designed for, how they were used and what their future looks like.
A brief history of cryptocurrencies - a visual timeline
Are cryptocurrencies a usable currency?
One of the key arguments against cryptocurrencies is their usability as an everyday currency and whether they could be used as a replacement to cash.
When asking the question about whether cryptocurrencies could be used as a replacement of traditional currencies such as the Pound; a user must be confident that they could survive if they ditched their current wallet and replaced it with a crypto wallet.
To do this you must be able to spend your cryptocurrency at everyday retailers such as supermarkets. However, using Bitcoin as an example, the number of commercial retailers who accept these payments was increasing consistently from 2010 to 2017, but then fell by 80% when the value of Bitcoin reached its highest in 2017 – but has since started increasing again in 2019.
There are numerous arguments for why we don’t see cryptocurrencies being used on an everyday basis and why it’s use is so inconsistent. We have detailed some of the most prominent below:
Government and backing resistance
It comes as no surprise that a currency with no government and central bank regulation has faced a lot of criticism and setbacks from those institutions. This is because these organizations are concerned about losing control over their fiscal sovereignty and that cryptocurrencies provide a tool for criminals to exploit.
Earlier this year in May, US Democrat Congressman Brad Sherman, began working with his colleagues to ban cryptocurrencies in America due to the threat they pose to US international monetary power. In addition, France has banned a new cryptocurrency launched by Facebook called, Libra, as they are concerned about consumer risk and a potential loss of monetary sovereignty for the central government.
A Lack of supporting infrastructure
A lack of infrastructure supporting currencies like Bitcoin, means they struggle with comparable volumes of payments that cash and credit cards process. This is due to the blockchain technology that records and validates Bitcoin transactions, only being capable of processing a fraction of payments made each second compared to major credit card companies.
Lack of commercial backing
We haven’t seen a wide onboarding of cryptocurrency payments by large everyday retailers, such as supermarkets. This is due to the lack of technology supporting cryptocurrency payments.
Also, in the US, the Internal Revenue Service (IRS) considers cryptocurrencies as an asset, not a currency, meaning that each payment that you make is a taxable transaction. So, if you used cryptocurrencies to buy a coffee, you’ll need to pay taxes at your capital gains rate; making it cheaper to pay by cash.
Value instability is causing people to collect Bitcoin
The value of cryptocurrencies regularly experiences huge surges and drops in price. This has led to a number of users holding on to their cryptocurrencies rather than using them for everyday payments. This is because they don’t want to risk the price changing and potentially losing out on a capital gain.
Plans for the future
The future of cryptocurrencies is uncertain, with many opposing views on where the technology is heading. But despite the level of scrutiny received from governments and industry experts, there is still a lot of positivity surrounding the potential of the technology.
Facebook has recently been working on their own digital cryptocurrency, Libra, which is grants people access to a currency that can be spent anywhere and which is accessible to anyone with an internet connection.
However, many of the world’s largest payment organizations such as Visa and Mastercard, abandoned this project shortly before its release, due to regulators and governments heavily scrutinizing the currency - with the French government banning Libra entirely.
Libra has also influenced the Chinese government into creating their own digital currency. It aims to remove the need for cash and will work with blockchain. But unlike Libra, and other cryptocurrencies, the Chinese government will have full visibility of spend.
The Wall Street Journal, however, has claimed that the only way crypto and digital currencies will be a success is if they are faster, cheaper and more secure than credit cards.
Does your procurement team need to start using cryptocurrencies?
There has been a lot of exciting talk about how cryptocurrencies could be used within supply chains, to give companies greater supply chain transparency. This will be achieved by leveraging the blockchain technology to record each step of the supply journey, enabling organizations to easily record the origins and authenticity of their materials.
However, existing cryptocurrencies give all users complete anonymity, which means that a digital currency would need to give account information about each user before it could be implemented in supply chains.
Other benefits of businesses using cryptocurrencies include:
Faster payments – as cryptocurrencies don’t pass through any major banks for authentication, payments can be made faster.
International payments – cryptocurrencies operate as one centralized currency, which means that you don’t have to worry about exchange rates when trading globally.
Customer confidentiality – a regular concern for consumers is whether the information they enter online to make a payment is secure, as data hacks have become common over the past decades. Cryptocurrency payments, however, give consumers full anonymity and they only have to provide as much information as they are comfortable with, to make a payment.
What do you think the future of cryptocurrencies looks like? Do you use them, or do you think that they are a pointless technology that will soon be forgotten about? Join the conversation on our Twitter and LinkedIn. Or to learn more about us, head over to our homepage.