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Are cryptocurrencies going to replace existing currencies in the future?

Since the arrival of ‘cryptocurrencies’ in the early 21st century, much media commentary and research has been attributed to their dramatic rise in popularity and the history behind this new market disruptor. However, what is yet to be fully quantified is their capacity for wholly replacing existing currencies.

Cryptocurrencies are based on advance technologies. Such technologies, including blockchain, are speculated to become the global currency of the future. In their current form, however, they face a number of barriers preventing them from becoming the dominant currency in society.

Market confidence in the potential for cryptocurrencies to become a respectable and stable medium form of exchange is undermined by their volatility. Speculation in these markets is rife which has a detrimental impact on the stability of the underlying price. Furthermore, there remains concerns over the current scalability of cryptocurrencies. This scalability, when measured in terms of trades per minute, is barely a drop in the ocean when compared with payment systems such as Visa.

Societal behaviours and regulation have also been seen as significant obstacles to the widespread adoption of cryptocurrencies. These technologies are complex and require significant time and money to understand them. A currency must be user-friendly to become mainstream. Unfortunately, in their current form, cryptocurrencies are simply too difficult to work with which generates resistance from consumers to use them. Equally limiting to the upsurge in cryptocurrencies is the complex and inconsistent structures of regulation which surrounds them. Supervision across different regulatory bodies remains out of sync, creating a highly fragmented landscape for cryptocurrencies. Such insecurity and lack of commonality across markets hinders mainstream adoption. A hindrance that will persist unless international cross border cryptocurrency regulation is formed.

Despite the current barricades to the continued rise of digital in the form of cryptocurrencies, the rapid growth of mobile technology and digital payment infrastructure has contributed to the expansion of countless different businesses, some of which are now market leaders in their respective sectors. It would be naïve to believe that, over the longer term, digital will not have a similar impact on the currency markets as we see new generations begin to move away from paper cash.

However, money is not dead yet. Paradoxically, in this age of rising digitisation, there is more paper and more coins in global circulation than ever before. Money trade volumes are continuing to rise, which supports the theory that cryptocurrencies currently face too many barriers for mainstream adoption.

Digital payment transactions volumes are rising faster than ever before. Cryptocurrencies, however, are not rising at nearly the same rate.

It’s clear that for cryptocurrencies to become the leading medium of exchange, the infrastructure that supports them requires a significant upsurge if they are to become a viable alternative to traditional currencies. Significant investment from the largest financial industries will be necessary to ensure the cryptocurrency market can handle the trillions of daily transactions made by consumers across the globe. Widespread testing and maturity in cryptocurrencies will be mandatory if they are to be accepted across society. For now, such currencies are not seen as a stable medium of exchange and certainly one that is as secure as the traditional currencies currently favoured by consumers.

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© 2020 by James Thomas Consulting.