Cryptocurrency and its related terms have become part of our everyday discourse and language. Still, many people don’t comprehend what exactly cryptocurrency is, don’t understand how it works, and have never held even a single coin. Cryptocurrency’s history is relatively short, and its usage is still limited compared to other forms of currency. Still, it is gaining and popularity making it more important for everyone to understand what is behind it. Whether or not cryptocurrency will become part of the mainstream economy is still to be seen as there are still several challenges that need to be overcome before universal adoption is possible.
What is Cryptocurrency?
Cryptocurrency is a digital currency based on a technology called the blockchain. Most people even vaguely familiar with the concept have heard of the largest and most popular version called Bitcoin and maybe another, Ethereum. What many may not know is that there an estimated 5000 different types of cryptocurrencies in circulation in some form.
Cryptocurrency can be bought, sold, traded, and exchanged for goods and services online. With some minor exceptions found in some new experimental forms, cryptocurrency does not exist in any physical form. It only exists in the form of a secure digital ledger on the blockchain.
What is Blockchain?
The blockchain is a way of structuring and storing data that hold records of transactions. By design, it ensures security, transparency, and decentralization. The technology allows that data to be stored on thousands of servers worldwide. It also allows anyone on the network to see all of the entries in very close to real-time. Because this ledger is distributed, it is very difficult for anyone to gain control of or hack the network.
A Short History of Cryptocurrency
While the first fully-developed cryptocurrency didn’t become available to the public until the end of the first decade of the new millennium, there were earlier attempts. Some of the early efforts included B-Money, an anonymous and secure electronic currency system. Bit Gold was another unsuccessful attempt. Still, these early concepts did influence later successful cryptocurrencies.
With the late 2000s came the modern era of legitimate cryptocurrency. The most storied event in the history of these currencies was the publication of Bitcoin – A Peer to Peer Electronic Cash System written under the pseudonym, Satoshi Nakamoto. In 2009, the first and still most well-known cryptocurrency, Bitcoin, became available to the public. At the same time, the mining process began. Mining allowed people to earn Bitcoin tokens instead of exchanging money for them. This was done using computer power to solve computational puzzles, which helps maintain the integrity of the ledger of transactions.
It wasn’t until 2010 that people started to understand the actual value of Bitcoin. The very first transaction, which established some sort of value, was the purchase of two pizzas for 10,000 bitcoin. Since then, the value of bitcoin has grown exponentially. Those 10,000 bitcoin, in today’s market, would be worth close to $600 million.
By 2011, the concept of cryptocurrency was gaining so much interest that alternatives to Bitcoin began to appear. Still, not all of them have shown the growth or stability of Bitcoin, and a lot of money has been lost by those speculating on new types of cryptocurrency.
Where is Cryptocurrency Used?
As cryptocurrency grows in popularity, opportunities increase to use it for financial transactions. Since Bitcoin remains the highest volume and most well-known example, it can be used for many day-to-day transactions. The Home Depot, the largest hardware store in the U.S., accepts bitcoin for all purchases in stores. Overstock.com accepts not only bitcoin but also several other cryptocurrencies. Whole Foods, Regal Cinemas, and Baskin Robbins are just some of the other outlets that now accept bitcoin and other cryptocurrencies for everyday purchases.
Retail isn’t the only use for cryptocurrency. In fact, there are some applications for which the flexibility of crypto stands out. Money transfers are one type of transaction for which crypto has an advantage over traditional banking methods. It is faster and much less expensive to transfer large amounts, especially internationally. Many users also prefer cryptocurrency for private transactions. Recently, this new form of currency is becoming a vehicle for funding startups through ICOs (Initial Coin Offerings), a form of IPO (Initial Public Offering) using cryptocurrencies like Bitcoin or Ethereum.
Challenges Facing Cryptocurrency’s Move to the Mainstream
With all the cryptocurrency has going for it, some may wonder what stops it from becoming part of the mainstream. While the growing number of ways you can use it as a payment method and other applications for it as a financial instrument, it is still a long way from universal acceptance or adoption. There are four main challenges still facing cryptocurrency: volatility, uncertainty, lack of consumer education, and the ease of entry into the market.
Probably the biggest challenge facing cryptocurrencies move to the mainstream in market volatility. Consumers are used to a currency that maintains a specific value. While prices may fluctuate, impacting the relative value of currency in relation to goods and services, and a national currency may fluctuate in exchange for other national currencies, the market is mostly stable. That type of stability is not found even in more widely adopted cryptocurrencies like Bitcoin. Before cryptocurrency can see mainstream adoption, either the volatility will need to be reduced, or users will need to find ways to deal with it.
Another roadblock in crypto’s move to the mainstream is uncertainty. Since it is still new relative to other forms of currency, there are still many questions about its future, especially in terms of regulation. Future regulations could drastically impact the viability of cryptocurrency, especially in certain applications. Many may be nervous about investing too much in this uncertain future.
Two more roadblocks are closely related. The lack of consumer education and issues of ease of entry into the market may hold cryptocurrency back from the mainstream. While the average consumer has likely heard of cryptocurrency and maybe knows a little about it, few feel like they know enough to get involved. This lack of education is exacerbated because obtaining currencies like bitcoin is not as easy as stopping by your bank, heading to an ATM, or using your financial institution’s website. For most, it takes significant effort and a higher level of comfort in technology to enter into the realm of cryptocurrency.
Where Do We Go from Here?
There is still a bit of uncertainty about the future of cryptocurrency. Yet very few people think it is going away. Questions remain whether, in its current form, it will ever be accepted into the mainstream of currency. Through changes in regulation, technology, and consumer perception, crypto’s future will unfold in the years to come. However, many companies look at how cryptocurrency can be used for everyday purchases without needing to convert back to a FIAT currency. If these types of transactions can happen without friction and carry the same protections as we see for credit and debit cards, this will completely change the payments landscape. In this scenario, that would paint a vastly different future for this new financial instrument.