Cryptocurrencies are making their way into the mainstream and despite the naysayers could emerge as a go-to payment method over the course of the next decade, according to research by UK-based eToro exchange and Imperial College London.
The research points to the characteristics of bitcoin, the leading digital currency by market cap, which is well on its way to fulfilling the criteria as money. Economists like Joseph Stiglitz are fighting it every step of the way, with the Nobel Prize winner attempting to discredit bitcoin before it reaches its full potential.
Bitcoin: Next Step for Money
According to the research report, which is dubbed “Cryptocurrencies: Overcoming Barriers to Trust and Adoption”, bitcoin is a “viable evolutionary ‘next step’ for money.” Indeed, money has been an evolving system, from barter and cowrie shells to coins, notes and cards and the rise of mobile payments. In this digital age, decentralized money threatens to take the crown of fiat, or at least compete with it. And bitcoin is well on its way to doing just that.
“There’s a lot of skepticism over cryptocurrencies and how they could ever become a day-today payment system used by the man on the street … cryptocurrencies have already made significant headway towards fulfilling the criteria for becoming a widely accepted method of payment,” according to the report.
Indeed, Bitcoin has attained one in a trio of characteristics that are required to qualify as money, and that’s acting as a store of value, similar to gold, which incidentally bitcoin is increasingly trading in correlation with. The three criteria, as per the report, include:
- Store of value
- Medium of exchange
- Unit of account
In order to meet the second and third requirements, the broader cryptocurrency market will have to overcome some of the impediments to growth, such as “scalability, design and regulation,” not to mention volatility, incentives and privacy.
Some of these issues are being addressed in terms of bitcoin with solutions like the Lightning Network, which is designed to bolster transactions and add scale to the network. Ethereum is looking to do this with an approach known as sharding, which will substantially increase the number of transactions that the blockchain can support.
The eToro report points to skepticism surrounding cryptocurrencies, and this has perhaps been felt by no group more than economists, who appear befuddled by the rise of decentralization. Joseph Stiglitz, a Nobel Prize-winning economist, has been among bitcoin’s harshest critics, and his chief complaint surrounds the pseudo-anonymity of bitcoin.
“You cannot have a means of payment that is based on secrecy when you’re trying to create a transparent banking system. If you open up a hole like bitcoin, then all the nefarious activity will go through that hole, and no government can allow that,” according to Stiglitz cited in CNBC.
But that’s why regulation is so vital, as are other features that the eToro report pointed out such as incentives and some degree of privacy. Nobody is saying that bitcoin is a panacea or that it doesn’t have issues to work through. Blockchain pioneers themselves describe bitcoin and the blockchain as an experiment, one whose outcome no one knows yet. But the cryptocurrency community isn’t sticking their heads in the sand about the issues that must be resolved before bitcoin could, in fact, reach its potential as a mainstream payment solution.
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