Cryptocurrencies will become a valid means of payment, UK academicians claim. Prof. William Knottenbelt and Dr. Zeynep Gurguk of Imperial College London are certain that Bitcoin and digital tokens will become mainstream in money evolution and will be able to oust fiat currencies in case they successfully go through their teething troubles. Such is the conclusion of the Cryptocurrencies: Overcoming Barriers to Trust and Adoption joint research by the College and eToro social trading network.
The researchers are sure that despite skepticism about virtual tokens, cryptocurrencies are mature enough and the time is approaching when they no longer are reserve assets and can be validly used for daily transactions.
In experts’ view, emergence of digital currencies is a natural stage in money evolution from cowrie shells to plastic bank cards and to contactless online payments. The researchers have discovered that cryptocurrencies already successfully fulfill one of the three main roles of traditional fiat money, namely, they are store of value. Yet they have not become medium of exchange and unit of account. Fulfilling the functions of a medium of exchange and unit of account is highly dependent on regulators, governmental and other ecosystem actors who are in no hurry to give up their monopoly to shape monetary policies.
The researchers argue, that “Cryptocurrencies can become units of account only if there is a friendly and conducive regulatory environment”.
Blockchain developers have no influence on entering legal terrain and reducing volatility. Still, they will have to focus their efforts on other specific issues. Cryptocurrencies will require additional scalability, usability and privacy. If the technology evolution is successful, Bitcoin, due to its decentralized nature, will shortly demolish contemporary ideas of the nature of financial systems and assets.
A cryptocurrency’s main advantages are its openness and availability. Yet such advantages become the main obstacles to an active expansion of Bitcoin in the business environment. Since entries to public registers are open to anyone, that will allow companies follow competitors’ cashflows and may ultimately result in a sabotage of blockchain payments.
The researchers call Bitcoin the most advanced cryptocurrency as it partially performs all of the three money functions. First, it is used as a medium of exchange for acquiring certain goods and services. Despite high transaction costs, by 2017 yearend over 11,000 companies worldwide listed Bitcoin as an acceptable means of payment (a quarterly growth in such companies’ number is 10%).
Second, Bitcoin is used as a unit of account in its own ecosystem, as exchange rates of other currencies are linked to it. Nevertheless, to become commonplace, it is to reach a global proliferation level.
Third (and, in researchers’ view, the most essential), Bitcoin is a store of value since it had already made its early buyers wealthy people.
The researchers point it out to the skeptics who claim that Bitcoin and other cryptocurrencies are not backed by anything at all, that:
“Money is like a myth that requires only imagination for its creation, but faith for its effectiveness”.
Cryptoenthusiasts say, it is fiat money that is the greatest social experiment on the human race; Bitcoin is merely a techno-reaction to that. Therefore, traditional horror stories about digital currencies are equally applicable to fiat money.
In the market, nevertheless, attitudes towards digital currencies are mixed. Bill Gates, for instance, warns against acquiring any cryptoassets. Meanwhile Naval Ravikant, one of Twitter investors, claims Bitcoin is capable of resolving financial problems of all people worldwide. George Soros calls cryptocurrencies a bubble (yet that was not an obstacle for his hedge fund to engage in buying and selling virtual currencies), whereas Bernard Lietaer, euro architect, proclaims it a complimentary currency.
By Anna Oreshkina