There is a gaping divide in the public discourse about cryptocurrencies between people who believe these will take over the world and those who see them as a passing fad. We could learn a lot from the swift growth of cryptocurrencies. However, in order to do so we must carefully identify the aspects of them that are useful and the less savoury aspects that we must be prepared to discard. In this article, I will explain why I believe that breaking into the mainstream is the only way for any cryptocurrency to survive in the long term and how they must change their approach in order to do so.
The current virtual currencies’ user base is still miniscule compared to the total number of people making financial transactions daily. Globally, we estimate that roughly 2.5 million people have ever used cryptocurrencies. Compare that with the number of people who use financial services: a good upper bound for this is the 5.3 billion adults in the world. Accessing the mainstream users of this world would grant cryptocurrencies a huge boost in both transaction volume and credibility, dramatically changing the way people perceive them. However, for this to happen, cryptocurrencies must change the offering they provide. They must move from secrecy to safety, from a service that is inconvenient to track, to one that is convenient to use.
Contrary to popular belief, cryptocurrencies have certain mainstream usage advantages over other payment mechanisms. They require very little existing participation in financial services. One is no longer required a bank account to use cryptocurrencies. They also require little in the way of technological infrastructure. As of today, it is easy to find cryptocurrencies that run on smartphones. In the future, it may be possible to use even cheaper and less advanced gadgets to make payments. This is a huge advantage in developing countries, where mobile and internet penetration are far above banking penetration.
The key to attracting mainstream users is to realise that they do not tolerate risk. For most of the potential users of payment services, especially in the developing world, each transaction represents a noticeable chunk of the user’s wealth. This is even truer for value storage services such as banking. These users will never adopt a service that cannot provide strong and credible assurances that their money is safe. Unfortunately, while the pseudonimity of some cryptocurrencies can provide privacy for legitimate users, it is also capable of shielding attackers. This ‘secrecy’ aspect of cryptocurrencies has also been exploited in the past by criminals as a means of moving money. Reducing the degree of secrecy in a cryptocurrency may help remove some of the shadier elements of its ecosystem. It also introduces accountability, something that makes it much easier to punish criminals and attackers.
Cryptocurrencies have low barriers to entry, but also find it difficult to make fundamental changes to their design once they become established because of their decentralised nature. Due to these factors, it is often easier to create a new cryptocurrency than to correct the faults of an old one. This means that incumbent cryptocurrencies are always under threat of being displaced by new entrants. Consequently, the only cryptocurrencies that can survive in the long run are those that can build up a sizable enough community whose users become willing to tolerate its faults rather than switch to a more technologically advanced competitor. In my opinion, the only way to create such a community is to win over users of mainstream financial services. Simply poaching existing cryptocurrency users away from other services will not work; the pool of such users is simply too small.
There may come a point in time where a cryptocurrency will have to choose whether to reform, exchanging reduced secrecy for increased safety. This move would risk losing existing users but provide a chance at mainstream acceptance. It is our conclusion that such a move would be very worthwhile in the medium-to-long term.
About the author
Dr Neeraj Oak is author of the recently released book “Virtual Currencies – from Secrecy to Safety”. With a background in Mathematics, Physics and Complexity Science, Neeraj’s doctoral thesis explores the mathematical modelling of economics of nascent markets through complex networks, game theory and data analysis, and he applies the expertise upon the world of digital money. He has conducted an analysis of remittance prices around the world and has produced a number of recent reports on Digital Money for Shift Thought.
Neeraj manages the knowledge base, technologies, research and analytics at Shift Thought. He is also a visiting fellow at University of Bristol’s Cabot Institute, where he facilitates industry and government relationships.
Shift Thought is a UK-based consultancy with distributors around the world. We offer access to our knowledge base through a self-service portal, and provide consulting and research services to our international customers that include banks, mobile operators, payment service providers and others.
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