Cryptocurrencies function much like traditional currencies in that they can be transferred digitally and used to pay for goods and services around the globe. However, they also pose several benefits that fiat currencies lack, such as the fact that they operate using a decentralized network and not a bank or government agency (providing greater control to users) and can execute international payments in a fraction of the time and cost.
While many believe cryptocurrencies will eventually replace traditional currencies, there is plenty to be done before we get there. We are sooner more likely to experience cryptocurrencies working alongside traditional currencies than entirely replacing them, a movement that is generating momentum each day.
Before we launch into what the industry needs in order to go mainstream, let's first observe how we reached this pinnacle moment in the history of finance.
How crypto officially got on the map
Bitcoin was created to provide an independent financial system to people that were thrown into serious debt following the global financial crisis. The digital currency was created to provide individuals with the opportunity to control their funds independently from any financial institution.
Since the advent of Bitcoin in 2009, cryptocurrencies have experienced interest from many groups of people, largely outside of mainstream media. In 2017, following a wild bull run, Bitcoin was first thrust into the mainstream media spotlight as it fast became the main topic of conversation across various news channels around the world.
Fast forward three years to the pandemic. Following global market crashes, Bitcoin displayed impressive resistance and built its wealth back more quickly than many other assets and stock markets. This caught the eye of many large corporations, dispelling scepticism and leading one in particular to move their USD reserves into Bitcoin. Following Microstrategy's decision to buy large amounts of BTC, many other large corporations followed suit, with companies like PayPal and Square even incorporating cryptocurrencies into their systems.
This wave of institutional investment not only increased the value of the markets but also helped to build confidence for retail investors to invest in such "risky" assets. This also played a large role in major corporations embarking on serious research and development of both blockchain technology and cryptocurrencies.
What crypto needs
Commonly used as an investment tool, cryptocurrencies were designed to facilitate faster and more economical transactions. Operating on a peer-to-peer basis, cryptocurrencies essentially cut out the middleman (and its fees) and make digital cash more readily available.
As with most things in life, there are two significant camps for and against the mainstream use of cryptocurrencies. Those for the widespread adoption believe the spike in interest will continue on its upward trajectory, believing that very little could hinder its growth. Those against the growth argue that fluctuating market prices and uncertainty around the practical application will hinder its mainstream adoption.
What cryptocurrencies likely need before any mainstream adoption is a well planned regulatory framework that can appease both the innovative technology and the merchants and consumers using it. Regulations are a necessary component to anything becoming mainstream, and the ones surrounding cryptocurrencies are vague at best. While many nations are working on creating and implementing these, there is still a gaping hole in the industry.
Based on conversations taking place in the banking and fintech worlds, it is highly likely that in the coming years more traditional companies will expand to offer crypto-enabled financial services. As interest and access continue to grow, companies will need to follow suit if they wish to stay in the game. Large payment processing companies like Visa and Mastercard are already looking to provide crypto services, a key indicator as to where the market is headed.
What are the advantages of Bitcoin over existing currencies?
Bitcoin, and other cryptocurrencies, pose several advantages over fiat currencies. The biggest attribute to cryptocurrencies is that they are decentralized, meaning that they are not controlled by governments or banks, rather they are issued by the network and managed by the individual holding them. Instead of a government deciding to print more money thereby increasing inflation, cryptocurrencies are inflationary and instead created using a mining system that is controlled by various mechanisms.
Using blockchain technology, the digital cash systems provide an immutable and transparent ledger that records all the transactions and ownership, ensuring that funds are handled properly and with the correct measures. Cryptocurrencies also pose a much faster and cheaper means of sending money across borders, a huge advantage for businesses operating on a global level (i.e. sending funds from the U.S. to the United Kingdom).
The biggest advantage to crypto is that it is financially inclusive. Anyone around the world can partake in the payment system with no paperwork, previous financial statements or tedious processes required, it simply requires an internet connection.
What are the disadvantages of Bitcoin compared with existing currencies?
Currently, the disadvantages of cryptocurrencies are that they are not freely accepted around the world (yet). While the adoption levels are rising there is still a gap in how and where users can spend their cryptocurrencies. Another disadvantage is the market's volatility, posing potential inconsistencies between the price when making a payment and once the payment is received.
El Salvador leads the pack
In late 2021 El Salvador became the first country to initiate Bitcoin as a legal tender alongside the US dollar. The decision has accumulated many mixed reviews, with some hailing the president a revolutionary and others concerned he will crash the country's already fragile economy. Should his plan work out we're likely to see this happen again.
In conclusion: Crypto is on an upward trajectory
With all things considered, cryptocurrencies and blockchain technology are here to stay. While cryptocurrencies might be a significant distance from becoming mainstream, they are far too integrated into our society and financial landscape to all but disappear. All things considered, the money is too great, the technology too innovative and the thought of financial inclusion too promising for any of it to go away.