Market Overview

Bitcoin Is 10 Years Old, Yet It's Market Adoption Remains Elusive

Bitcoin Is 10 Years Old, Yet It's Market Adoption Remains Elusive

Bitcoin was created in the aftermath of the 2007/2008 global financial meltdown after traditional financial institutions recklessly plunged the global economy into a recession. In 2009, Satoshi Nakamoto introduced Bitcoin as "a purely peer-to-peer version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution."

10 years later, there are more than 2900 other altcoins and crypto tokens in the market. Some of the coins are clones of the same idea while others are created as innovative solutions to some problems in the global financial services industry. This piece provides insight into why the adoption rate of cryptocurrency is low after one decade. There’s also be highlights of some interesting developments that could ramp up market adoption going forward.

Crypto adoption rate is slow and stagnating
Bitcoin is decentralized and pseudo-anonymous; hence it is somewhat hard to get hard data on its adoption rates. However, the fact that transaction data are immutably stored on the Blockchain provides some irrefutable evidence about its market penetration. The chart below plots the number of unique Bitcoin Wallet addresses since the launch of Bitcoin from 2009 to Oct 2019.

From the chart, you’ll observe that the number of unique Bitcoin wallets increased steadily from 1 address in 2009 to more than 400K accounts by 2016. However, the number of unique wallets addresses have been stuck in the 400K to 600K range for much of the last three years. Of course, the number of unique addresses seemed to spike at the height of the 2017 bull run and the dead cat bounce of 2019; the growth rate wasn’t sustained, and the volume was quick to fall back into the range.

A research report from ING International Survey revealed that the awareness about Bitcoin among people aged 25 to 44 years old in Europe, Australia, and North America ranged from 38% to 79% of the population. However, the number of people who owned any amount of cryptocurrency in the same demography ranged from 4% to 12%. The outlier to the data was Turkey where 18% of the demographics owned some cryptocurrency – this oddity in Turkey makes sense when you think about its uncertain economic and political conditions.
Cryptocurrencies are still communicated as complex ideas
One of the main factors delaying the mass-market adoption of cryptocurrencies is that it still sounds incredibly complicated to understand. The Blockchain technology that power cryptocurrency is a function of cryptography and cryptography is steeped in advanced maths than most people care to understand.

The key elements of interacting with cryptocurrencies such as hot wallets, cold storage, private keys, network fees, and Satoshi-to-fiat conversions follow a steep learning curve.

More so, newbies have to grapple with the information overload for understanding basic things such as which on exchange to buy what coin, how to convert crypto to fiat, where to spend crypto, and how crypto holdings could be potentially taxed.

Hacks and thefts of crypto assets are worrisome
Another critical factor delaying the mass-market adoption of cryptocurrency is the vulnerability of crypto assets to be stolen via hacks and data breaches. For instance, hackers have stolen more than $4.26 billion worth of cryptocurrencies in a series of hacks, data breaches, phishing attacks, and DDoS attacks in 2019. The volume of cryptocurrencies stolen in the first two quarters of 2019 is 150% more than the $1.7B worth of cryptocurrencies that was stolen in all of 2018.

The fact that hackers are becoming increasingly adept and resourceful at bypassing security measures to steal coins and the fact that stolen coins can’t be retrieved is making it hard for many people to invest their funds into crypto assets.

Thankfully, traditional digital payment companies such as Skrill are entering the cryptocurrency market might assuage the fears about the security of user funds. Skrill has close to 20 years of experience in providing simple, quick, and secure digital payment services and it is an acknowledged global leader in the payments industry. Skrill is providing its users with what could be the easiest alternative to purchasing crypto directly into a wallet.

With Skrill, users don’t have to worry about wallet addresses, cold storage or private keys because funds are held in Skrill’s secure custodianship which helps to protect beginners from unwittingly exposing their crypto assets to hacking risks. Also, Skrill is authorized and regulated by the Financial Conduct Authority under the Electronic Money Regulations 2011 for the issuing of electronic money and payment instruments.

Price volatility is hindering merchant adoption
Another factor frustrating the mass-market adoption of cryptocurrency is the inherently highly volatile nature of cryptocurrencies. As of January 2019, Bitcoin was trading around $3,700 and its price soared to a $12,700 high in June before it crashed to a $7,800 range in September. It is not uncommon to see 10% to 20% daily price gains or price drops in the cryptocurrency market—and the market doesn’t seem to be particularly panicky or bothered when it happens.

In contrast, a 3% price gain or price drop in the value of fiat currencies will be a newsworthy event after a historical event such as Brexit, a recession, or the assassination of a president. Hence, merchants are not keen about accepting cryptocurrency payments because crypto lacks the price stability to be a reliable store of value.

However, the introduction of stablecoins and atomic swaps already provides a practical means to manage the volatility. A stablecoin is a cryptocurrency developed to minimize the volatility of risk of crypto by pegging its value against a fiat currency. The only challenge, however, is that it is too much hard work to collect crypto payments, manage stablecoins, and convert the funds back into fiat. Hence, merchants don’t have any incentive to start accepting complex crypto payments instead of readily available fiat payments.

An unhealthy focus on speculative gains instead of transactional use
One of the biggest pitfalls that will continue to frustrate the mass-market adoption of cryptocurrency is the unhealthy focus on cryptocurrencies as an asset for quick speculative gains. The original idea of Satoshi was to have Bitcoin become a replacement (or complementary) alternative to fiat currencies. It is however disheartening that cryptocurrencies are rarely used for transactional purposes as payment for goods and services. In contrast, much of the crypto transactions are powered by trading and investment thesis in the hopes of profiting from the future price gains.

However, there’s still hope that the transactional purpose of cryptocurrencies might be realized through crypto-assets such as Ripple (XRP). Ripple is designed to help individuals, corporations, and traditional financial institutions move money across borders by leveraging Blockchain technology. Ripple is currently ranked as the fastest and most scalable digital asset and it would be interesting to see how it helps cryptocurrencies unlock mainstream usage.

Increased clarity in the regulatory environments, simplifications of cryptocurrency payments, and increased VC funding of Blockchain and crypto startups are some of the factors that could fast-track the maturity cryptocurrencies as a reliable store of value and means of exchange.
Most of the stakeholders in the Blockchain and cryptocurrency industries have determinate optimism about the mass-market adoption of cryptocurrencies. Despite the current hurdles on the path to the mainstream adoption of cryptocurrencies, there’s a clear understanding of the puzzles that need to fit together for cryptocurrencies to become fully integrated with the global economy.

Image Sourced from Pixabay


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