Cryptocurrency is gaining ground, but could it one day replace national, fiat currencies?

Written by Maria Voloshchyuk, Guest Blogger.

When the topic of cryptocurrency comes up, conversation inevitably reverts to the latest price fluctuations in Bitcoin. But while this might be interesting, in as much as Bitcoin is a bellwether for cryptocurrency as a whole, the borders of discussion extend well beyond the behaviour of this particular coin where the future of cryptocurrency is concerned.

Bitcoin was the first cryptocurrency to launch 10 years ago, and admittedly, progress has been slow since then with regards to mainstream adoption. However, the tide is turning; an increasing number of legitimate blockchain companies are launching, more banks and enterprises are experimenting with blockchain and crypto, and legitimate cryptocurrency exchanges have been set up in places like Malta and Gibraltar. So, the question is, is crypto here to stay? And in what ways is it likely to evolve?

“One way to pose this question is to think about the functions of crypotocurrencies – what functions can they fill that are similar to what existing asset classes or instruments fulfil? At the most basic level, there are three things:

• The unit of account (like dollars).
• Its store value (like gold, platinum, or any other precious commodity).
• Or as a bet on the future of blockchain,” says Andrew Riem from latest law jobs and author of a study titled Economics of Cryptocurrency’ (published here), which compares Bitcoin, Ethereum and Ripple to already established asset classes such as precious metals and stocks.

However, Riem’s study defines cryptocurrencies in their current form as distinct from everything else, in that the returns do not co-move with the returns of other asset classes. “They are very different but they are still an asset class of their own and in that sense, they’re going to persist,” he says. “So my prediction based on my research is that cryptocurrency is going to transform, and is going to fulfil some kind of need, which is different from traditional asset classes – stocks, commodities, and currencies.”

Will cryptocurrency exist in some form?

To examine whether cryptocurrency will survive, we need to ask whether crypto offers enough value over traditional forms of currency to endure, and the answer to this is surely a resounding yes.

To take a recent example that illustrates this, consider Ripple, the blockchain startup whose product, xCurrent – designed to make the checking of information required for transactions easier – is already being used by a number of banks, such as Santander.

xRapid is a more recent product from the startup – one which relies on cryptocurrency to work. This product has its application in emerging markets, where pre-loaded local currency accounts are generally required for facilitating payments – pushing up transaction costs and time. Instead, xRapid will quickly convert (with a transaction time of four seconds) fiat money into a cryptocurrency, XRP, to move it through the system before converting back into whatever the required currency is at the end.

The attributes of crypto make it easier than other currencies to use for micropayments, large transfers and sending money overseas. However, it’s still not caught on with consumers. “Right now, cryptocurrencies are still too geeky – you have to know too much about how they work,” says Simon Barnes, senior futurist at the DaVinci Institute and co-founder of the first lingerie line that accepts cryptocurrency as an alternative payment method. “It’s the way computers worked in the 1980s, people would actually change out their own motherboards and put in new cards, people don’t do that anymore. Now, I think we’re moving into the era where we don’t need to know so much how cryptocurrencies work, just what they do.”

It’s widely agreed a breakthrough moment is needed where cryptocurrencies become vastly more appealing for the average internet user. It’s unclear how this shift might take effect – whether it will be through growing interest in decentralised, blockchain based companies or whether there will be a fundamental transformation in how secure or accessible cryptocurrency is.

Whether or not crypto catches on will also be dependent on the network effect: “Which is the more people that use it, the more people want to use it,” says Anna, the founder of the first crypto-backed vape marketplace Vapertunity. “You can see it in variety of contexts and it’s certainly very strong with money. The more people who use the dollar, the more people want to denominate contracts or sales in the dollar.”

People are not precious, in the end it will all come down to convenience and ease of use. When choosing to transact in cryptocurrency becomes as simple as selecting Paypal over entering lengthy card details, or tapping a contactless card over using the chip and pin device – that’s when crypto will truly reach the masses.

Could Blockchain replace national currencies one day?

It’s possible that cryptocurrencies could one day become the de facto mode of payment for internet users. But a different question is vexing economists, future watchers and crypto fanatics the world over – could cryptocurrency one day replace national currencies?

Watch out for Part 2 of this article next week.