What's stopping cryptocurrencies?
Updated: May 15, 2020
It is unlikely that cryptocurrencies will ever completely replace fiat currencies, but ...
What needs to be done to get mass adoption of cryptocurrencies (as digital cash)?
1. Infrastructure. Cryptocurrency infrastructures are not capable of handling the required volumes.
The infrastructure needs to be able to handle at least 50,000 tps just to keep pace with Mastercard. To compete effectively with retail banks, infrastructure would probably need to to process transactions orders of magnitude faster than that. Only BSV is heading in that direction, but let's assume that at some point, the infrastructure will be available.
2. Ease of Use
Cryptocurrencies need to have the same ease of use that fiat currencies users experience. I.e. debit cards, credit cards, "Tap and Go". Again, cryptocurrency is many years from where it needs to be, but there are a significant number of companies working in this space, so let's assume that the prerequisite software and hardware will be available.
What would a cryptocurrency credit card look like? For many enthusiasts, the raison d'être for bitcoin's existence is that it is not based on debt. Credit cards imply debt. Banks rather than governments "print" (or rather lend) money they do not have. Bitter history has taught us that bad debt is one of the underlying causes for economic downturns, so a centralised regulatory body is required as well as a bank of last resort. Providing the type of services that consumers want means that cryptocurrency suddenly acquires the kind of features that purists so heavily criticise the existing fiat system for.
Easy of use also needs to extend to traders as well as consumers.
Why do most shopkeepers not accept multiple currencies?
Dual currency accounting software.
Financial services are built on debt, and debt requires identity.
It seems likely that there will be considerable push-back against incorporating identity into cryptocurrency transactions: 50% of cryptocurrency use is associated with criminal activity.
3. Legal Protection
If someone uses my stolen credit card to buy something on Amazon, I have legal protection. The card provider will give me my money back. What is the situation if someone uses my stolen cryptocurrency card? Am I covered by legislation? At the moment, there is no intermediary to accept the loss. Either the trader reimburses me and takes the loss, or I takes the loss.
Currently buying cryptocurrency leaves the same feeling one gets buying foreign currency at the last minute at an airport. Existing exchanges have a huge spread between buying and selling cryptocurrency.
Holding cryptocurrency can be hazardous to your financial health. The value of cryptocurrency can collapse 20% in a few hours. A trader could easily find that the cryptocurrency accumulated from his sales would not cover his costs.
Some countries are actively hostile to cryptocurrency. For example, India. Some banks close retail accounts if they are linked, even innocently to cryptocurrency, to avoid any AML complications. The US have denied regulated funds from investing in cryptocurrencies. Even if funds are allowed to invest in cryptocurrency, it does not follow that cryptocurrencies will be adopted 'on the street'.