It sometimes feels as if spending our hard-mined coins in the day to day marketplace is never going to happen. For all that the current banking systems make it easy to use fiat currency, with contactless payments and smartphone apps, in the background of every such payment lies a raft of administration and a three-day settlement period. Peer-to-peer payment would cut through this, settling transfers quickly and cheaply. It has to be the future. Why isn’t it the present?
Of course, it is possible to make payments in cryptocurrency right now. You can spend your crypto on books, hotel rooms, and conference tickets if you really want to. Unfortunately, the volatility of major cryptocurrencies makes this largely impractical for the mainstream consumer, and the capacity for transaction processing is woeful compared to the systems run by centralised authorities like Visa. Given these conditions, will we ever reach the point where cryptocurrency is stable and accessible enough to be viewed on a par with fiat?
Volatility and Stability
We have all seen the rise and fall of Bitcoin and the altcoins it trails in its wake. There is no point analysing the tales of manipulation behind the big highs of last winter, but it is worth noting the day to day volatility which renders this type of crypto impractical as a means of payment. These are almost closer to crypto assets, and many authorities are starting to define the volatile currencies and plethora of tokens as such.
A new class of cryptocurrency is emerging in a bid to reduce the swings of value. Stablecoins are, very simply, coins whose whole or part value is tethered to another asset. They have many critics, and the concerns are not unfounded. Take Tether: it links coin value to the US dollar, but its claim that it holds enough dollars on deposit to back the asset has been challenged, and it has a murky reputation following research into the behaviour of the bull market last year. Economically the concept of stablecoins is not proven. Even holding half the asset value on deposit to back coins is an expensive business, and partly-backed or non-backed stablecoins are vulnerable to the same risks and volatility that plague the rest of the market.
Ultimately, there is no quick fix. For traders and consumers to embrace cryptocurrency, we need a high volume of transactions. This will dampen down the wild swings and make cryptocurrency a practical alternative. Luckily, the rapid advances in technology that will enable this are already underway.
Scalability and Speed
To function effectively, cryptocurrency must work at scale. This depends on two things – transaction speed, and transactions per second (TPS). Bitcoin was quickly outpaced by its younger competitors on both counts, and the race continues. This recent study of transaction speeds gives a range across 26 cryptocurrencies from 1.5 seconds (EOS) to 78 minutes (good old Bitcoin). TPS also varies enormously and provides a good comparison with existing systems. Bitcoin trundles along with up to 7 TPS, and successive currencies have bettered this. Large players such as Ethereum at up to 30 TPS and Bitcoin Cash at 60, however, do not come close to the capacity of traditional centralised systems such as Visa which comfortably processes 40,000 transactions per second. It feels as if that crypto coffee is still a long way from reality. But hold on: waiting in the wings we have technology such as Credits which has beta tested a stunning 488,403 TPS, and this is not the only development which is pushing for high volume, high-speed results.
There is progress, then, in paying for our Americanos directly in crypto, but long before this happens we expect transactions will be processed right under our noses using cryptocurrency, without our knowledge.
Payment platforms and third parties
As we referenced in a previous article, cryptocurrency scams and fraudulent behaviour is still a big issue, and there is a need for a payment platform in the cryptocurrency space that can go some way to eliminating these problems.
While the banner of decentralisation is almost uniformly flown by the crypto community, sometimes there will be a need for a third-party intermediary, and the argument is strong that it is within the consumer-to-merchant space that it will be most useful.
Protecting buyers and sellers when it comes to crypto payments, ensuring both parties get what they deserve, is something that is absolutely needed to make the rest of the world comfortable enough to get involved and see crypto as the future of money.
Payments under the radar
Like so many aspects of the new world of blockchain and distributed applications, most people are unlikely to notice when the tech is operating. The work going on in the background of financial institutions is frenetic, ground-breaking and quite far advanced. Blockchain technology is being implemented to eliminate administrative pain points and cut out central processing, and cryptocurrency is oiling the wheels. I fully expect that by 2020 any cross-border payments I make will be processed through a distributed ledger with only passing attention from the centralised banks, probably facilitated by an embedded crypto transaction using the likes of Ripple’s XRP. I won’t know when it happens.
Maybe that is what we really wanted all along: a more efficient process, quicker settlement, lower fees, protection for buyers and sellers. Ultimately, technology adoption is driven by the needs of the user. When the user experience is right, we will all be using cryptos.
Over to you
What do you think? How much longer is the road toward mainstream cryptocurrency adoption? What are the barriers and what are the reasons why cryptocurrencies will be used as payments?