The Road to Mass Crypto Adoption: Scaling, Adoption and the Rising Tide
Given how crypto has become a global phenomenon in its own right, author Aubrey Hansen discusses what it will take for the industry to achieve mass adoption.
Just two years ago, the cryptocurrency industry was relatively unknown, with no project outside Bitcoin garnering any attention from the mass media or regular consumers. The past few years have changed the narrative around cryptocurrencies and their potential for disruption across a wide swath of industries, yet the number of actual cryptocurrency users remains underwhelming. So, where do we stand on cryptocurrency adoption and what road will lead to mass market appeal?
Even if a serious uptick in user numbers were to occur, it is clear most major blockchains would be unable to handle the increase in transactions. This is because public blockchains currently max out their ability to complete transactions at a relatively low rate compared to other transacting networks.
The key to scaling is likely to be second layer solutions, such as Plasma on the Ethereum blockchain and the Lightning Network in Bitcoin. Millions of dollars in grants and research are being spent on the development of such solutions in order to create networks that can handle a large number of transactions without showing any signs of lagging.
Other blockchains are exploring alternatives to the original proof-of-work (PoW) consensus mechanism employed by Bitcoin. Proof-of-stake (PoS), proof-of-authority (PoA), and other methods are being researched and deployed on blockchain structures. At the same time, other distributed ledger methodologies, such as Directed Acyclic Graph (DAG) (most notably utilized by IOTA), are hoping these structures can support a higher volume of transactions without compromising network security.
Development in blockchain technology and cryptocurrencies has mostly centered on devising solutions for proposed use cases and creating the foundational building blocks of networks. This has led to major breakthroughs on the technical side but has failed to address the user experience directly to make it easy for individuals to comfortably play any role in the digital economy.
Decentralized applications (dApps) were expected to leap forward in 2017, but it did not happen because they were not easy for the typical consumer to use. For instance, CryptoKitties, with its tradable digital cats, was touted as being a breakthrough for the industry when it exploded on the scene in mid-2017. However, the game had an estimated 14,000 daily active users (DAUs) at its peak, a paltry number when compared to other applications and games existing without the use of blockchain technology.
The user experience issues stem partly from the complexity and cost of onboarding to any cryptocurrency – aside from high fees, there are also problems related to converting fiat money to cryptocurrency. Moreover, there is a scarcity of functional products on the market, with over 60% of the major cryptocurrencies lacking a working product at this time.
Should public blockchains be able to find a way to scale and dApps work their way through user experience issues, the cryptocurrency industry would still be burdened with the lack of trust in the exchange network. If there is no safe, affordable, and seamless way to obtain cryptocurrencies, they will remain difficult to use in daily life.
There are numerous issues with current exchange options, the primary one being the lack of trust users have in any platform to provide a safe place to transact. Too many exchanges have either experienced security breaches and hacks or have been caught in fraudulent acts. However, some believe these issues stem more from lack of regulation and government oversight than anything else.
This positions regulated cryptocurrency exchanges as the key players in the next wave of adoption. ETERBASE, which has just obtained an FMA regulatory assessment in Liechtenstein, is working toward becoming a fully compliant Electronic Money Institution (EMI). When that happens, it will be able to issue International Bank Account Numbers (IBAN) across Europe in much the same way as traditional banks do. Coinbase is regulated in the United States with FinCEN as a Money Services Business, while Gemini is under the oversight of the New York State Department of Financial Services (NYSDFS).
Rising tide or looming tsunami?
If cryptocurrencies want to gain widespread adoption and usage, they will first have to find a way to grow their networks in a way which can support this increase. At the same time, they will have to provide users with the applications and exchanges that will make it easy and simple to utilize these technologies and benefit from the advantages they offer. Solving the current problems will lead the industry to even higher valuations and growth, while failure to find solutions could result in the downfall of a promising new sector.