The Barriers to Mainstream Adoption of Digital Currencies
In the digital currency market, there are over 3 million active users with a combined market capitalization of $600 billion. Finance experts are therefore questioning whether digital currencies have crossed the chasm into mass mainstream adoption.
Although bitcoins and altcoins are gaining popularity, digital currencies have yet to hit everyday adoption. The most significant barrier towards this adoption is the extreme volatility of these currencies. Digital currencies have a fixed supply making demand uncertain, causing large fluctuations in value.
Digital currencies are also abstract concepts that are hard to understand. They are neither a commodity nor currency, and operate in unregulated spaces susceptible to illegal schemes.
With greater stability, education and regulation, though, the World Economic Forum believes digital currencies will achieve mainstream adoption in the next ten years.
Mainstream audiences are likely to adopt virtual currencies once everyday businesses and institutions accept them as payment. Unfortunately, digital currencies have not yet gained trust from the larger majority.
On the other hand, digital currencies present investors with a way to store their money with the opportunity for growth. Due to surges in value, many treat digital currencies like gold. People purchase them in the hope that their investment will appreciate over time.
The opportunity for digital currencies to appreciate, then, is too high to spend on trivial goods.
Mainstream consumers see digital currencies as too much of a form of unstable money to trust and therefore do not use to exchange for goods. For digital currencies to find success as a regularly used currency, the public must believe coin values are inherently stable.
Neither commodity nor currency
There is significant lack of clarity and understanding of the origin of digital currencies. Experts cite cryptoeconomics, a new field of science not yet widely understood, as the reason for this confusion.
In the past, precious metals such as gold or silver were used as currencies. Currencies evolved to become paper printed by governments or central banks.
Digital currencies, on the other hand, are not tangible.
They exist only in digital form and computers mine these coins by solving complex algorithms. Digital currencies are therefore not a commodity consumers can trade and not widespread enough to be considered as a currency. They’re not backed up by tangible assets, not controlled by governments or third parties, and can be created by anyone.
These attributes go against the idea of what constitutes a currency today. For widespread implementation, the educational system must provide adequate resources and teachers to teach economics and currency in a new way.
Lack of regulation
Unlike other currencies, the government or a financial institution like a bank does not regulate digital currencies.
For digital currencies to achieve mainstream adoption, governments must approve and regular them as legal tender.
Without efficient regulatory frameworks, consumers aren’t protected by laws and may encounter fraud. The government needs to implement regulations to punish and deter cyber-criminals from engaging in fraudulent behavior.
Due to the lack of government control, terrorists and extortionists are also using digital currencies to their advantage. Digital currency users can remain anonymous on either end of a transaction and mask their addresses to engage in illegal activities.
Concerns over illicit uses like these deter mainstream society from using digital currencies as a negative stigma builds and could potentially expose the public to new unforeseen risks.
While there is an exponential increase in digital currencies, traders and investors, digital currencies must stabilize if they are to become a regular currency.
Blockchain technology itself may not require regulation, but governments will need to create regulations to control the frenzy concerning digital currencies.
The potential for growth in mainstream adoption
Like the transition from precious metals to paper money, the change to a digital currency will require thorough education for the public so they can understand how it works.
The government also needs to implement strict regulations on fraudulent and illegal activity to protect and preserve the public’s faith in the coin.
Although digital currencies have not yet crossed the chasm, governments are considering the potentials of a decentralized digital currency, with the Bank of Canada releasing a whitepaper on the subject. With proper government involvement and support,, digital currencies can then cross the chasm.
Buy Bitcoin, Ethereum, XRP, and other cryptocurrencies on Coinsquare.
Get the latest blockchain and digital currency news from Canada and around the world, delivered each week to your inbox.
Your Email address