Bitcoin and cryptocurrency could become mainstream payment solutions, according to researchers at Imperial College London in a new report entitled Cryptocurrencies: Overcoming Barriers to Trust and Adoption.
Published today, the academic report was commissioned by eToro’s UK Managing Director Iqbal Gandham. Co-authors Professor William Knottenbelt from Imperial College London and Dr. Zeynep Gurguc from Imperial College Business School argue that cryptocurrencies are already acting as a store of value, one of three key roles performed by fiat currencies.
To reach mass adoption, cryptocurrencies will need to serve all three key functions.
- Store of value: allowing individuals to make intemporal choices on when to spend their purchasing power
- Medium of exchange: facilitating the exchange of goods and services by eliminating the inefficiencies associated with a barter economy
- Unit of account: acting as a measure of value in the economic system.
Lack of adoption has prompted many Bitcoin detractors and cryptocurrency opponents to claim that fiat currencies should never be challenged. The report makes clear that real-world adoption for emerging technologies that stick around can take decades. “The first email was sent in 1971,” said eToro’s UK managing director Iqbal Gandham, “but it took nearly three decades for the technology to become commonplace with a user-friendly interface in the form of hotmail.”
Money has evolved over time from cowrie shells to coins, notes and payment cards. The argument that money will now cease to evolve because central banks have determined that the current incarnation of currency exists in a near-perfect system that cannot be out-performed is fundamentally challenged by the introduction of cryptocurrencies in cross-border payments.
The researchers outline the correlation between the evolution of money and the reduction in payments friction. The paper concludes that the widespread and mainstream adoption of cryptocurrencies fits the progression as cryptocurrencies reduce friction and have the power to serve the global economy.
“Perhaps the thing that will ultimately tip cryptocurrencies into mainstream is the issue of cross-border payments. These remain difficult and expensive in many cases. Cryptos are cross-border by design, enabling wealth to be transferred far more easily. The potential for this to be a leading use case looks very strong,” says Gandham.
The report details six outstanding challenges for cryptocurrencies: proof that cryptocurrencies can scale enough to facilitate high volumes; user-friendly interfaces designed for mass adoption; clear regulations that create a global standard; less market volatility; proper incentives to spur adoption and deter bad actors from manipulating the system; and the implementation of different levels of privacy for different use cases and different users.
“New payment systems (or asset classes) do not emerge overnight,” said Dr. Zeynep Gurguc from Imperial who co-authored the report, “but it is worth noting that the concept of money has evolved – even in our lifetime – from cash to digital or contactless payments. The wider use of cryptocurrencies and crypto-assets is the next natural step if they successfully overcome the six challenges we set out in our report.”
Related: IMF: Cryptocurrency May Be a New Phase of Human Evolution