Over the past decade, the cryptocurrency sector has become a haven for traders and investors who use the market’s extreme volatility for profit. So prevalent has this use case become that many forget the original purpose behind Bitcoin’s invention: as ‘peer-to-peer electronic cash.’
Convenience is key
A key factor that restricts retail adoption is the extreme volatility that inherently makes cryptocurrencies profitable trading assets. It’s challenging to spend a currency when it’s value fluctuates wildly between the time you choose an item and the time you go to pay. Other issues that have historically deterred users from spending their crypto are slow transaction times and high fees, but these problems are slowly being eradicated as technology improves.
Nowadays, many more advanced cryptocurrencies offer high-speed, low-fee transactions – making them ideal for small, everyday purchases. However, despite these ongoing developments, daily spending of cryptocurrencies remains low, which hinders further adoption of the industry and slows progression.
A recent survey by the Foundation for Interwallet Operability (FIO) found that 70 percent of cryptocurrency holders have rarely or never used cryptocurrency to complete any type of retail or peer-to-peer transaction. The survey also sought to determine reasons for or against spending crypto and found that only 25 percent of respondents felt confident that the transaction would complete successfully. This indicates that there is a dire need for more robust technology and trustworthy service providers, as highlighted in this OP-ED from crypto news website Bitcoin.com:
“It’s time for wallets and exchanges to change the paradigm and enable dramatic improvements in usability across all blockchains. By uniting around a decentralized Paypal-like protocol, we can finally break through the barriers on blockchain usability.”
Stablecoins: Pros and Cons
In the past year, stablecoins have emerged as a possible way to overcome the problem of volatility presented by most cryptocurrencies. The original purpose of stablecoins like Tether (USDT) was to give investors the ability to store a digital equivalent of fiat currency on a cryptocurrency exchange. This means investors can take their money ‘out’ of cryptocurrency while avoiding the fees and waiting times associated with withdrawals or deposits via a traditional bank. Recently, large corporations like JPMorgan and Facebook have begun investigating the possibility of introducing their own form of stablecoin, which could potentially make spending crypto easier.
Facebook announced plans to launch its stablecoin, dubbed Libra, by 2020. The coin will reportedly be backed by a ‘basket’ of fiat currencies such as the dollar, euro, and yen. However, while stablecoins may make the actual spending of cryptocurrency easier, they don’t fully represent a move away from traditional currencies as they are intrinsically still tied to banks. This, in many ways, negates the original purpose of creating a decentralized, peer-to-peer form of digital cash.
Bringing cryptocurrency to the people
Some users may be unwilling to spend their crypto in fear of losing out on potential future profits, but as crypto starts to replace cash, it should be approached in the same manner. For example, if you have only $10,000, you wouldn’t invest all of it – you would keep some for daily spending. In this way, crypto enthusiasts could keep a percentage of their capital in investment coins like Bitcoin and the rest in more easily spendable assets like Litecoin, Bitcoin Cash or Dash. This allows users to both profit from investment and also help to grow the industry in a positive fashion.
In an effort to help promote the use of cryptocurrency in everyday payments, one of the longest-running cryptocurrency payment gateways, Coinpayments, recently partnered with crypto directory listing service Cryptwerk.
“It’s important to remember to not just hodl your crypto, but also to spend it to help increase adoption. Since the crypto space is still in its early days, spending and transferring cryptocurrency has never been so important,” says Sean Mackay, Operations Lead at Coinpayments.
Collaborations such as these are at the forefront of driving cryptocurrency adoption because the vast majority of potential new users are not looking to invest, but to spend. Until cryptocurrency can offer everyday citizens a real-life use case, adoption will always be limited to a tiny minority of investors or tech enthusiasts.