By defining the purpose of money, you can see exactly where the cryptocurrency stands in relation to it.
A new research paper by Dr. Zeynep Gurguc and Prof. William Knottenbelt of Imperial College London, commissioned byeToro, examined the remaining challenges and barriers to broader cryptocurrency adoption and tentatively concluded that the broader use of cryptocurrencies seems increasingly inevitable.
"The concept of money itself has evolved a lot throughout our lifetime, from cash to plastic, through the use of debit/credit cards and even more so with the current use of contactless payments," he said.paper(PDF) read. “The wider use of cryptocurrencies is the natural next step to reduce friction in the global economy, supported by token adoption in local contexts, whether specific to geographic regions or industry sectors.”
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Can cryptocurrency be money?
The first question the researchers asked is whether cryptocurrency can be money. The rest would be a moot point if the answer were no.
To be money, they said, cryptocurrency must fulfill three main functions: be a medium of exchange, be a unit of account, and be a store of value.
In response, the researchers noted that it is already a functional store of value by any measure, albeit a volatile one, and that the only real barriers to cryptocurrency functioning as a unit of account and medium of exchange are trust and cryptocurrency adoption.
He pointed out some of the similarities between cryptocurrency and other forms of traditional value in the process.
From there, the question can be examined from the perspective of what obstacles remain for cryptocurrencies to be more accepted as currency, thus fulfilling the other two functions and making the leap to being “real money”.
In other words, what are the main obstacles to trust and adoption of cryptocurrencies? They came up with six main obstacles.
The document succinctly summarized each of the issues, the specific parts of the coin-like they inhibit, and the nature of possible solutions as such.
Problem: regulation or lack thereof
The researchers note that the lack of consistent regulation inhibits trust and adoption. Widespread scams in the crypto space, prolonged use of technology for illegal purposes, and a seemingly endless supply of drug-themed cryptocurrencies could be undermining the reputation of legitimate projects and sending some rather alarming signals to would-be adopters.
The natural solution to at least some of these problems is regulation, but the global nature of the technology may "cause problems for the traditional regulatory measures available to nation-states."
As traditional measures are unlikely to work for the foreseeable future, the alternatives could be a global regulatory framework or some kind of self-governance model or reputation system to allow the ecosystem to guide itself.
The survey notes that global cryptocurrency regulations are being implemented haphazardly and bit by bit. While some countries are committed to working together on regulating cryptocurrency, others have committed todoing the exact oppositeonothing same.
As such, the combination of formal regulations withvoluntary regulatory complianceand extensive use ofidentity reputation systemsmay be a more likely way to do it.
Problem: Finding a balance between privacy and trust
It's tempting to look at blockchain technology as a transparent source of truth, the researchers note, but in the real world, all stakeholders want different levels of privacy.
However, this conflicts with different regulatory expectations. Authorities in Japan are launching privacy coins, while US regulatorsseem to be assessing the shape of the problembefore hitting the hammer.
Of course, cash, prepaid debit cards, and other means of exchange are also completely anonymous. In general, full transparency is a much bigger obstacle to cryptocurrency adoption than privacy.
The solution, therefore, will need to be a system that can provide different levels of privacy on demand,which can also bring some powerful benefits beyond what is currently available.
Problem: volatility and the vague possibility of total collapse
Volatility can be a daunting characteristic of a store of value.However, stablecoins are a thing., and they tend to work quite well.
There is also the issue of a cryptocurrency going to zero and the risks of routing funds through centralized exchanges.
“While the issues facing traditional financial systems, such as bank runs, are relatively similar to those facing cryptocurrency exchanges, the high volatility of crypto assets has the potential to negatively affect perceptions and make it difficult to use across the board. long-term type of transactions... duration," he said. watch the researchers.
In the bigger scheme of things, all the economies and currencies that don't exist today have collapsed. Clearly, the possibility of a total economic collapse is not unique to cryptocurrencies.
Problem: Scalability, the trilemma
There is a saying regarding blockchains that goes:You need speed, security, and decentralization, but you can only choose two. This is sometimes known as the scale trilemma.
Most of the better-known currencies like bitcoin and ether opt for security and decentralization, making them slow and impractical for global adoption as a real monetary system.
A popular school of thought holds that distributed ledger technologies will never be able to meet the needs of a global economy because they will always be slower and less scalable than centralized systems. A popular rebuttal is that it would only matter if the world needed an infinite number of transactions.
However, it doesn't matter, and functionally it doesn't matter that distributed ledgers are less fast than centralized systems, as long as they are fast enough.
This issue is primarily technical in nature, the article says, noting some of the many developments underway to address this issue, includingbitcoin lightning networkmiEthereum Planned Scaling Solution Suite.
The problem is that it's slow and, appropriately, the solution is simply to give it time.
Problem: Incentives and the need for an integrated economic theory
One of the trickier hurdles for some cryptocurrencies may be thatthe network token should serve more purposes than just being a currency. They may need to act as a governance token, network enabler, consensus mechanism, or whatever. In the case of bitcoin, for a relatively simple example, the coin should serve as both a network transaction fee and an incentive for miners.
These jobs can naturally get in the way of cryptocurrency's secondary responsibility of being a currency.
It's as if credit cards had to double as a cutlery set, or cash had to be an effective emergency starter. It's doable enough, but it still means additional design considerations getting in the way.
The article points to developments in the fields of game theory, engine design, and behavioral economics to help guide future cryptocurrency developments.
Problem: ease of use
Cryptocurrency is relatively limited to technically savvy audiences at the moment, the document notes. As long as the barriers to entry remain high, cryptocurrency will not gain the trust and adoption it needs to become real money.
This naturally affects individual users in the form of having multiple wallets, some of which are hostile or hostile to the user.
But it also affects industry operators, the researchers say. These issues take the form of interactions between cryptocurrency and traditional fiat banking facilities, specialized cybersecurity needs, and a new field of best practices to understand.
The solution may come again over time. There have been many moves towards distributed ledger technologies in various capacities of traditional banking institutions, and each day brings new advances and developments.
The applications of distributed ledger technology make it difficult for most companies to ignore it completely, and as they begin to examine how best to use it, there will naturally be more and better systems and practices for managing cryptocurrency.Keeping your cryptocurrency at a regulated bank may not be a cypherpunk dream, but it sure is convenient..
matter of time
Every issue between cryptocurrencies and broader adoption has a solution, and sometimes that solution takes a little longer as ongoing developments run their course.
"Given the speed of adoption, we think we could see Bitcoin and other cryptocurrencies on the streets within a decade. Of course, there are barriers to widespread adoption, but they are far from insurmountable," said Iqbal Gandham, CEO of Kingdom. United. from eToro.
The idea of cryptocurrencies as a currency may seem far-fetched, but over a long period of time, it would be much stranger if something as practical and widely applicable as a decentralized digital currency somehow didn't catch on.
To quote a "renowned bitcoin expert" quoted by the newspaper, "fiat money is the greatest social experiment of the human race, Bitcoin is just a technological reaction to it."
You said, renowned bitcoin expert!
Disclosure: At the time of writing this article, the author owns ETH, IOTA, ICX, VET, XLM, BTC, and NANO.
Disclaimer:This information should not be construed as an endorsement of the cryptocurrency or any specific provider, service or offer. It is not a recommendation to operate. Cryptocurrencies are speculative, complex, and carry significant risk: they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Please consider your own circumstances and obtain your own advice before relying on this information. You should also verify the nature of any product or service (including its legal status and any relevant regulatory requirements) and consult the websites of the relevant regulators before making a decision. The finder, or the author, may have interests in the cryptocurrencies discussed.
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