Bitcoin and other crypto-currencies have, according to a newly published research paper, the potential to offer a viable evolutionary “next step” for money and could become a mainstream form of payment within the next decade.
The report, entitled Cryptocurrencies: Overcoming Barriers to Trust and Adoption and published this week by Professor William Knottenbelt from Imperial College London and Dr Zeynep Gurguc from Imperial College Business School, argues that because crypto-currencies already act as a store of value they fulfill one of the three fundamental roles of traditional fiat money.
To meet the other two roles – as a medium of exchange that facilitates the trade of goods and services without the inefficiencies of a barter economy, and as a unit of account that serves as a measure of value in an economic system – Bitcoin and the other cryptos will have to make progress in areas of scalability, design and regulation.
Money has evolved significantly over time, says the report, with barter systems being replaced by coins, then notes, payment cards and, most recently, contactless and mobile payments. Despite the changes, the research argues, money’s three core functions have remained constant throughout and provided crypto-currencies start to demonstrate progress as a medium of exchange and unit of account, as well as retaining their functions as store of value, they will represent a viable technological update for money.
“The world of crypto-currency is evolving as rapidly as the considerable collection of confusing terminology that accompanies it,” writes Professor Knottenbelt. “These decentralized technologies have the potential to upend everything we thought we knew about the nature of financial systems and financial assets. In this context, we wanted to get back to basics: clarifying the nature of crypto-currencies as a new kind of asset class, contrasting them with traditional forms of wealth, and classifying the main challenges that need to be overcome in order to drive their success forward.
“There’s a lot of skepticism over crypto-currencies,” added Knottenbelt, “and how they could ever become a day-to-day payment system used by the man on the street. In this research we show that crypto-currencies have already made significant headway towards fulfilling the criteria for becoming a widely accepted method of payment.”
The paper, sponsored by London-based brokerage eToro, identifies six challenges that need to be addressed before cryptos can fully enter the mainstream. They must solve their scalability issues, become less complicated to understand and use, they must work within a standardized global regulatory framework, become less volatile, be free of price manipulation and must solve issues around privacy.
“New payment systems, or asset classes, do not emerge overnight,” writes Dr Gurguc “but it is worth noting that the concept of money has evolved – even in our lifetime – from cash to digital or contactless payments. The wider use of crypto-currencies and crypto-assets is the next natural step if they successfully overcome the six challenges we set out in our report.”