Why Cryptocurrencies are Struggling to Attract Mass Adoption
Its a decade now, cryptocurrencies have survived this tough market and proved its true might and implication in the financial system of the world. Then why is that, it is struggling to find mass adoption and countries are reluctant to have favourable regulations towards it.
Despite all the successes it has earned, still, there are limitations to fully make it as one global currency. Below is the list of possible factors, that will explain why it is so:
Not Fully Aligned to Existing Economic System
One of the major fear of the policymakers around the world is that if cryptocurrencies are made legal global currency, then it will end the centuries-old established practice of banking and finance, crippling the whole system.
In one of the studies by Central Bank of South Korea, it is said that if any form of cryptocurrency whether its central bank backed digital currency is approved, then it will cause acute liquidity crisis with a surge in interest rate.
Having cryptocurrencies inclined economy will severely impact the credit creation process and money supply in the system will fall.
Since cryptocurrencies are based on decentralised ledger technology, which neither can be controlled and manipulated. Meaning, it will take away the central authority of the government to control its fiscal maths. Further, transactions in Bitcoins and other cryptocurrencies are completely anonymous, which will increase the chances of tax evasion.
Technical complexities is also another limitation associated with cryptocurrencies. To purchase and spend digital currencies, one has to create a digital wallet to store the cryptocurrencies and is only accessed through a private key, and if lost, the whole cryptocurrency balance would be lost permanently. Given the technical complexity, acceptability remains a concern and older age people will always find it difficult to understand.
The year 2017 witnessed a record high value of legacy cryptocurrencies with Bitcoin recording a 20 times increase in value. But, also recorded 90 per cent slump in value in the year 2018, highlighting the issue, extreme volatility. People will find it hard to accept if their crypto holdings are not worthy tomorrow as it is today.
Risk of Manipulation
Currently, the crypto ecosystem is controlled by individuals, and the risks of manipulation are always high. A few days back, there was a news report that stable coin Tether (USDT) is not fully backed by USD reserve, sparking fear among investors and was trading lower than the base value. Until this problem gets addressed, the situation of uncertainty will continue to persist.
Last but foremost, Regulations. The cryptocurrencies are not regulated by most of the economies and is finding strong resistance from the policymakers. Regulations will help to bring back the confidence in the market, thus bringing in more users to the market.
The problems are real and need to get addressed before cryptocurrency goes mainstream. As per my views, the current structure of the cryptocurrency market will not survive long and a new form of the market will replace it, where it will find more public acceptance and provide more utility.