Bitcoin has been around for over 12 years, and the capitalization of the crypto market is already $ 2 trillion. Cryptocurrencies have many advantages over fiat currencies: decentralization, higher anonymity, instant transfers, and low fees, among many others.
Despite this, digital assets have not yet become fully mainstream – few people use them for daily payments, and retailers around the world are in no hurry to accept them for payment.
Let’s figure out what obstacles stand in the way of the massive use of cryptocurrencies, how they can be circumvented, and whether the situation will change in the near future.
How many people in the world are using cryptocurrencies?
Nobody knows the exact answer to this question. But you can get a rough picture of what is happening if you turn to statistics.
So, according to a September study by the Cambridge Center of Alternative Finance (CCAF), about 101 million people own cryptocurrencies on the largest exchanges . The study also says that by Q3 2020, these users had created about 191 million accounts on crypto exchanges. We are sure that over the past six months, against the background of the unrestrained rally in Bitcoin, these indicators have become even higher. It is also worth noting that these numbers do not include cryptocurrency users who do not hold their digital assets on exchanges.
The CCAF numbers are corroborated by data from Binance Research over the same period – the organization’s analysts also count over 100 million digital asset holders .
At the same time, about 70 million bitcoin wallets were created through the popular online service Blockchain.com. And if you believe the calculations of the BuyBitcoinWorldWide service, then there are about 200 million BTC wallets in the world, of which 100 million are unique.
Separately, it is worth noting the growth rate of the number of cryptocurrency holders. According to CCAF, in 2017, digital currencies were used by no more than 5.8 million people, and in 2018 – already about 35 million. And, as we wrote above, by the end of 2020 this figure reached 101 million. If the trend continues, in just a few years there will be about half a billion holders of cryptocurrencies .
But, even despite the impressive numbers, it is still impossible to talk about a truly massive use of cryptocurrencies. Consider what hinders this.
Technical limitations of blockchains
One of the main problems of modern blockchains is low scalability, that is, the inability of the network to conduct a large number of transactions in one second.
For example, Visa can carry out up to 65,000 transactions per second, Bitcoin – up to 7, and Ethereum – up to 30. The blockchains of these cryptocurrencies cannot process transactions of hundreds of thousands of users. But at a speed like Visa and above, billions of people will be able to use cryptocurrencies – just like they use bank cards now.
Aware of this problem, new projects are developing blockchains that can handle this load. Thus, blockchains are already successfully operating on the crypto market, which can process thousands and tens of thousands of transactions per second, for example: Polkadot, Cardano and Solana. But while many of these projects are at the very beginning of their development, and they have yet to become popular.
However, the low bandwidth of blockchain networks in itself is far from the main problem for the crypto market. The key challenge is to create a fast blockchain that is decentralized and secure at the same time. This is called the scalability trilemma and is being addressed by leading blockchain developers.
This problem was first presented by Ethereum co-founder Vitalik Buterin in 2018, where he described the need for blockchain projects to choose between decentralization, high scalability and security. But so far, blockchain networks with two of these properties are presented on the crypto market. For example, Bitcoin is decentralized and secure, but very slow and virtually non-scalable. And the EOS blockchain network has achieved high scalability (up to 9,000 transactions per second), but it had to sacrifice decentralization for this.
Another unique property of blockchain networks that can turn into a problem for a mass user is the need to work with private keys. It is thanks to them that the user can access their coins in the crypto wallet. However, private keys must be kept in a safe place and only known to the holder of the cryptocurrency. Otherwise, if, for example, the private key is lost, then access to the assets will be lost forever.
Many cryptocurrencies are not suitable for small payments
Due to the technical limitations listed above, most cryptocurrencies are not suitable for daily small transactions.
For example, a transaction on the Bitcoin network can take several hours or even days if the blockchain is heavily loaded. And the cost of the commission in Ethereum, due to strong congestion recently, ranges from $ 15 to $ 30 – with such transaction costs, it is profitable to buy only very expensive goods for ETH.
And the retailers themselves are not yet very willing to offer the opportunity to pay with cryptocurrency. And although there are more and more sellers who accept digital assets in exchange for goods every year, on a global scale, they are still a drop in the ocean.
For cryptocurrencies to become mainstream, they must be convenient for the mass shopper who wants to order food delivery, buy clothes or trinkets on AliExpress. Otherwise, the use of cryptocurrencies will be limited to a tech-savvy audience ready to specifically look for the right seller. However, steps in this direction are already being taken by Visa and PayPal.
Cryptocurrencies are not clear to many
Lack of understanding how cryptocurrencies work is one of the main barriers to their mass use.
Most cryptocurrencies, especially early ones, are difficult for technically unskilled people. To work with the same bitcoin, you need to create a crypto wallet, figure out what a public and private key is, come up with a reliable way to store keys, and also figure out on which platforms you can exchange BTC for other cryptocurrencies or withdraw it to fiat. Most people don’t know how cryptocurrencies and their blockchains work, let alone mining, consensus algorithms, and other intricacies of most cryptocurrencies. And it is precisely the lack of understanding of their structure that leads to the erroneous opinion that they are all fraud, pyramids or a financial bubble.
For cryptocurrencies to become more widespread, using them should be as easy as making a payment with a bank card or Apple Pay. An ordinary person does not know how Visa or PayPal work, but easily copes with payments through their systems. With cryptocurrencies, there should also be: the ability to buy, sell, store, transfer and pay with them should be available even to those who do not understand anything about them.
On the positive side, it is worth noting that people are starting to believe more and more in the prospects for cryptocurrencies. If we compare several recent polls, it is easy to see how the attitude of ordinary people to the developments of the crypto market is changing.
For example, The Tokenist platform analyzed surveys of US residents in 2017, 2018 and 2019. In three years, the number of Americans who know what bitcoin is has doubled – from 30% to 61%, the number of holders of this coin – from 4% to 14%, and the number of those who trust BTC more than banks has grown from 18% to 47% (!). Moreover, in 2017, 28% of respondents believed that the majority of people would use Bitcoin in 10 years. Now there are already 43% of them.
Analysts from the Harris Poll received similar survey results. So, from 2017 to 2019, the number of Bitcoin holders among Americans increased from 2% to 11%, and the number of respondents who are confident that BTC will be massively adopted in 10 years increased from 28% to 33%.
In Europe, according to ING Group for 2018 and 2019, the level of public confidence in cryptocurrencies is lower. But, for example, in Turkey the coin is trusted by more than 60% of those who passed the poll.
In Russia, more than half of the respondents are ready to keep their money in digital assets, but only a quarter of the respondents believe in their bright future.
Legal uncertainty of regulators
Despite the fact that bitcoin is already 12 years old, in many countries there is still no clear regulation of cryptocurrencies.
Countries in which cryptocurrencies have a legal status, for example, the United States and the EU countries, in the regulation of digital assets have focused on combating their use in money laundering and terrorist financing. Earlier, we examined in detail why cryptocurrencies should not be associated with crime. In fact, from $ 1 to $ 3 billion a year is laundered through cryptocurrencies, while through banks, including large ones, up to $ 2 trillion. Terrorists are also not interested in cryptocurrencies – they do not trust them, do not understand how they work, and cash provides them with greater anonymity than Bitcoin.
The situation in Russia is also ambiguous. The authorities adopted the Law on Digital Assets, according to which cryptocurrencies are recognized as property, they can be traded, but you cannot pay for goods and services. In this case, it is necessary to declare the presence of cryptocurrencies if their turnover exceeds 600,000 rubles per year, and pay taxes on income from them.
I am glad that the situation is gradually improving. No one in the West is going to ban cryptocurrencies (and such a ban would hardly be effective) – it is only about regulating them in the same way as traditional financial systems. Therefore, crypto platforms are required to comply with KYC / AML norms – to identify customers and report their transactions to financial regulators. In many countries, exchanges are also required to be licensed to operate.
But there is also a positive moment in this – the authorities take the crypto sector seriously and are ready to work with it. It is also beneficial for users who do not care about confidentiality – their money is more protected.
Excessive volatility of cryptocurrencies
The rates of many cryptocurrencies are subject to sharp jumps and are too volatile. No one on the crypto market is surprised by the rise or fall of prices by 5-10% during the day. This is an ideal situation for speculators, but absolutely not suitable for the mass user and large investors. Thus, according to a new report from JP Morgan, it is high volatility that scares institutional investors away from large-scale investments in cryptocurrency assets.
The high volatility of cryptocurrencies also makes it difficult to use them as a means of payment. How to transfer $ 1000 in cryptocurrency, if in an hour this amount can become $ 900. Any currency must be stable so that it can be used as a reliable medium of exchange.
Stablecoins – cryptocurrencies pegged to the price of the underlying asset – are the most successful solution to the problem of digital coin volatility. These assets are prime contenders to achieve truly massive use. They have all the advantages of cryptocurrencies without high fees and volatility.
In a joint report by the G7 Working Group, the Bank for International Settlements (BIS), the International Monetary Fund (IMF), the Financial Stability Board (FSB) and several central banks, regulators recognize the advantages of stablecoins in transfers and payments over traditional fiat systems. Moreover, authorities fear that stablecoins as a medium for cross-border transfers and payments could become so popular that fiat currencies could be squeezed out.
It is the fear of this that makes central banks around the world rush to launch their own digital currencies – CBDC. It is a government-owned alternative to stablecoins that the authorities can fully control.
Threat of hacker attacks
Security is still the weak point of the cryptocurrency infrastructure. News about hacking of crypto-exchanges and user wallets has long been a surprise. So, in 2020, hackers stole $ 3.8 billion worth of cryptocurrencies. And it’s not just the skill of the criminals: the developers themselves are often in a hurry and make mistakes that can be exploited by attackers.
Because of this, many people and companies forget about the benefits of blockchain and avoid investing in digital assets. The mass user needs guarantees that in the event of a hacker attack, he will receive his money back. After all, not all exchanges are ready to compensate users for losses.
Exchanges and developers need to pay much more attention to the security of their projects than they do now. They must also guarantee the return of funds to victims of break-ins. Then users will know that the crypto sector is no longer like the Wild West, and not only themselves are responsible for the safety of their funds.
We are on the cusp of mass adoption of cryptocurrencies
Despite all of the above obstacles on the way to mass use, we are sure that cryptocurrencies will soon overcome them.
It should be understood that the adoption of cryptocurrencies at the global level goes through several stages. At first, Bitcoin and other early cryptocurrencies were just a geek fad. Then speculators entered the sector and an investment boom began, which peaked in 2017-2018 against the backdrop of massive ICOs. And now we are at the stage of institutional adoption – cryptocurrencies are recognized as a full-fledged financial asset. The next step is the integration of cryptocurrencies with payment systems around the world.
So, in November 2020, PayPal added the ability to transfer cryptocurrencies, and at the end of this March, it launched a full-fledged service for US customers to pay for goods and services with their help. The payment company believes in the potential of digital currencies. Considering that PayPal has over 360 million users, this service provides access to cryptocurrencies for many people who have not even thought about using digital currencies before. PayPal will allow you not to worry about private keys and wallet settings – users will be able to pay with cryptocurrencies in a familiar interface, and the service itself will be responsible for converting cryptocurrencies into local fiat currencies.
Visa and Mastercard also want to be at the center of the massive adoption of digital currencies. Visa plans to add the ability to purchase BTC and support for BTC wallets. And Mastercard is already introducing cryptocurrencies into its payment infrastructure. Both companies are already working closely with crypto platforms.
Smaller payment services, including Robinhood, Revolut and Square among others, are also taking initiatives to introduce cryptocurrencies. Hopefully companies with billions of users around the world like Apple, Amazon, Google and Facebook will follow suit. Moreover, if Facebook’s Diem stablecoin launch project succeeds, it could bring hundreds of millions of people to the crypto market at once.
