Cryptocurrencies and Retail(Part 2)

This article is part 2 of a 2-part series on cryptocurrencies and their potential effect on retail. Part 1 was an exploration of the phenomenon of cryptocurrencies such as Bitcoin, what they are, how they work and the factors that have led to both their growth in popularity and value. In part 2 of the series I will explore, the reasons why cryptocurrencies haven’t been adopted by retailers en masse and whether or not they ever will be.

When historians look back on 2017 I have no doubt in my mind that they will dub it the year of cryptocurrencies. Whatever newspaper you read or TV channel you watch everyone seems to have an opinion on cryptocurrencies. Some call it a pyramid scheme or bubble waiting to burst while some have gone so far as to name it the greatest man-made invention in all of history that will fundamentally change human life going forward. Wherever you stand on the divide one thing that can be agreed on, is that cryptocurrencies have captured the imagination of the world.

A key part of this fascination has been the enormous gains in value that cryptocurrencies have experienced both in their lifetime and just this year. Take for instance Bitcoins more than 1000% increase in value just this year alone. These gains have not gone unnoticed by the broader financial industry and some players in the industry have chosen to act. Some of the recent developments that have occurred in the global financial space include:

· The establishment of a number of Crypto hedge funds.

· Cboe Global markets introducing derivative trading on bitcoin

· The CME Group allowing futures trading on Bitcoin

· Rumors of JP Morgan looking to grant its clients access to trade bitcoin through its futures-brokerage unit

These and other developments have begun to legitimize cryptocurrencies however despite these developments many still remain skeptical of the space and question the technology’s claim as a currency. Its critics point to the fact that cryptocurrencies have no intrinsic value and the fact that it has largely been used and talked about as a speculative asset rather than a medium of exchange. While I disagree with the argument that it has no intrinsic value these critics do have a point when questioning its credentials as a medium of exchange.

For cryptocurrencies to truly be accepted as a legitimate currency and achieve mass adoption, cryptocurrencies need to be accepted as a medium of exchange by retail companies.

Many retail companies ,both in the brick and mortar and online space, have tested and trialed cryptocurrency payments to varying levels of success. The main barriers to mass level adoption of cryptocurrencies can be summarized below:

The four factors stopping mass adoption by retailers:

1.  Safety
   

While the blockchain technology on which cryptocurrencies are based on is safe and cant be hacked into the exchanges where cryptocurrencies are stored and traded are not and as such are vulnerable to attack by opportunistic hackers seeking to make a quick buck. As the technology grew in popularity 2017 the frequency of these hacker attacks increased. The latest being a hack of a Slovenian bitcoin exchange that had 64$million in bitcoin wiped from its coffers. For the technology to be adopted safeguards where this technology is stored need to be greatly improved.

1.  Price volatility
   

One of the key characteristics of a currency is that it is a stable store of value and if 2017 is anything to go by cryptocurrencies have failed this test miserably. As mentioned previously bitcoins value in 2017 has grown by more than 1000% this year alone. While this is great for investors in the technology ,as it encourages more investment, it is bad news for those who want to trade goods and services using the technology as it disincentives commerce with the technology and encourages people to hold and speculatively trade their cryptocurrencies.

1.  Complexity around the purchasing of cryptocurrencies
   

Buying any cryptocurrency is both a time consuming and laborious process (and this is coming from a tech savvy millennial). One huge stumbling block in the space is the lack of guidance and detail that exchanges offer when buying cryptocurrencies. While those who are interested in the technology will have the patience and time to learn the average man in the street will not. For cryptocurrencies to gain more mainstream appeal the process of buying this technology needs to become more streamlined.

1.  Uncertainty around future government regulation
   

Critics of cryptocurrencies don’t deny its utility and game changing effect on how we buy and sell goods rather they point to that very fact to highlight an inherent risk in the technology. It has been argued that in the near future governments and regulators will eventually crackdown on cryptocurrencies as their growth and use may eventually threaten tax revenues and in so doing threaten the stability of governments across the world. It is believed that this scenario would wipe out the value of cryptocurrencies and leave those invested in the space with huge losses.

It is clear that Block chain technology and cryptocurrencies are here to stay however the form and direction that this new and innovative technology will take is less so . One thing that is clear though is that as revolutionary as cryptocurrencies are the technology still has a lot of work to do to before it revolutionizes global payments systems and is ultimately accepted by the broader retail environment.