In September last year, Christina Lagarde, the head of IMF, gave an incredible speech about Central Banking and Fintech in a Bank of England Conference in London. The most notable theme in the presentation was the role of virtual currencies and their place in disrupting the traditional financial systems as we know them.
According to Lagarde, virtual currencies such as Bitcoin are offering to solve existing problems and therefore mainstream finance should not take them lightly. However, she notes that the mass adoption of the digital currencies is still far from realization given that they are too volatile, highly energy intensive and blockchain- the technology behind them is still not yet scalable. There is also an issue with regulation, with governments across the globe fearing that its decentralized nature may make it a safe haven for criminals.
She goes on to point out that despite the concern, these challenges can be addressed over time and therefore do not warrant the dismissal of the technology.
Lagarde speaking source: CNN
Solutions to the problems she discussed are underway. Take the issue of blockchain scalability for instance; solutions such as the Raiden Network and Plasma are already available.
The Raiden Network scales the Ethereum network off-chain by taking advantage of a network of channels so the blockchain is not involved in every transfer. Plasma, an invention of Vitalik Buterin and Joseph Poon, on the other hand, handles smart contracts in the same way they are handled currently all while broadcasting the completed transactions to the public Ethereum chain. The two technologies aim is to make it possible to perform billions of computations per second.
On the issue of volatility, there is a reason to believe that the ongoing regulatory crackdown will lead to market corrections and ultimately price stability. With the regulators getting into the game, investors are likely to pay attention to the fundamentals of each cryptocurrency instead of jumping in for speculative purposes only. However, there is still a lot to be done given that a regulatory approach bringing order to the crypto-markets without inhibiting growth is yet to be outlined.
Apart from the reasons mentioned by Lagarde, the complexity of buying, transferring, exchanging and storing cryptocurrencies is also to blame for the slow adoption. Nevertheless, a number of solutions to this challenge have been introduced in recent months. For instance, in October last year, MasterCard introduced a blockchain-powered payment platform to be used by certain banks and merchants for the payments of goods and services. The move has been applauded by blockchain enthusiasts and identified as the first step towards large-scale acceptance by the traditional financial institutions.
Visa, on the other hand, has also shown interest in cryptocurrencies by approving crypto–backed cards and programs that allow consumers to convert cryptos into legal tender and deposit those funds in a bank account linked to its debit or prepaid card. Some of the blockchain companies that have partnered with Visa include Monaco, BitPay and Shift Card.
Blockchain firms are also working hard to devise ways to enable the mass adoption of cryptocurrencies. TokenCard, a debit card built for Ethereum and Smart Contracts, is a good example. The card will be easily topped-up by bank transfer or debit card and will likely be accepted by millions of merchants and ATMs worldwide. Alongside the Card, the company is developing a mobile app to help users view and manage their assets in one place, track their spending in real time, send and receive assets quickly and securely and switch between various digital assets with a swipe. TokenCard has partnered with key industry players such as Bancor, Melon Port, and Digix.
Finally, as people continue to get exposed to cryptocurrencies and blockchain technology in general, there is a high likelihood that the adoption rate will increase. It is human nature to resist change and therefore the slow adoption that has been witnessed in the previous years is not out of ordinary. However as the digital currency technology continues to be normalized, the rate of adoption will increase exponentially.