22 August, 2018
According to a recent academic study, cryptocurrencies are the logical next step for money and could become a global mainstream form of payment within the next decade.
Researchers from Imperial College in London and trading platform eToro released their findings on Monday in a report titled Cryptocurrencies: Overcoming Barriers to Trust and Adoption. In their research, Dr. Zeynep Gurguc and Professor William Knottenbelt investigated the question of what constitutes money and value, the evolution of these concepts, and how cryptocurrencies fit in with our understanding of traditional payment and currency systems.
Gurguc and Knottenbelt argue that cryptocurrencies already fulfill one of the fundamental roles of traditional fiat currency: being a store of value. Traditional money must also meet two other criteria: acting as a medium of exchange (serving to facilitate the exchange of goods and services without a barter system), and acting as a unit of account (a measure of value in the economy).
In order to meet these two additional criteria, cryptocurrencies will have to make progress on issues like regulation, scalability, and usability. Among other things, mainstream adoption will depend on achieving user-friendly design, implementing standardized global regulations, and managing volatility. But these are not insurmountable obstacles, the study concludes.
Iqbal V. Gandham, UK managing director at eToro, argues in a foreword to the report, “the notion that cryptocurrencies have to fit in with old-world financial models is flawed. Money has always evolved.” He points to the Internet and email as a parallel to blockchain technology and cryptocurrencies. Just as email decentralized communications, blockchain serves to “decentralize value.”
Although the first email was sent in the 1970s, it took almost thirty years for the technology to reach mainstream adoption through a user-friendly interface. On the other hand, as Gandham points out, the first bitcoin transaction “took place a little over eight years ago and today we are already seeing it begin to meet the requirements of everyday money.” In his view, the near future holds great promise for cryptocurrencies.
New payment systems and asset classes “do not emerge overnight,” says Dr. Zeynep Gurguc, “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,” as long as the various challenges described in the report are successfully overcome.
The subject of cryptocurrency as money has come up even in the U.S. Supreme Court. Commenting on the case of Wisconsin Central Ltd. v. United States, Justice Stephen Breyer argued that parties “should not be trapped in a monetary time warp.”
Breyer further stated:
“[W]hat we view as money has changed over time. Cowrie shells once were such a medium but no longer are; our currency originally included gold coins and bullion, but, after 1934, gold could not be used as a medium of exchange; perhaps one day employees will be paid in Bitcoin or some other type of cryptocurrency.”
The evolution of money and the financial system is ongoing. With continued positive developments in the crypto world—and with the backing of major institutions, leading thinkers, and global authorities—perhaps the prediction that crypto will hit the mainstream within 10 years isn’t so far off the mark.