4 reasons cryptocurrency still hasn't gone mainstream

Despite a decade of use and a twelve-figure market cap, it's still not clear whether cryptocurrencies like bitcoin are here to stay or will cross over into mainstream use.

Some experts, like Nobel prize-winning economist Robert Shiller, are pessimistic. On CNBC's Trading Nation, he called cryptocurrencies a fad on par with the Dutch 'tulip mania' of the 17th century. On the other end of the spectrum, Myron Scholes, another Nobel laureate, is helping to develop a low-volatility cryptocurrency called Saga (SGA).

One factor many agree could make or break cryptocurrency is whether it can outgrow its current appeal to the FinTech crowd and join the real economy. It all depends on whether consumers adopt cryptocurrency as a payment method like any other. So far, they have proven reluctant to trade their fiat bills for crypto coins.

Here are four reasons why, and some solutions, too:

Crypto is hard to spend

Probably the biggest obstacle to the uptake of coins like Bitcoin and Ethereum into the real economy is the lack of opportunities to spend it. Even though more than half of Amazon customers would use an Amazon coin for their purchases, actually doing so remains basically science fiction.

Liquidity in crypto markets is shaky. Since it's hard to make real life crypto purchases in most big marketplaces, the coin holders aren't always able to fulfill their holdings.

"In order for cryptocurrencies to become mainstream, the infrastructure surrounding it must be user friendly and efficient," Guy Melamed of Zeex, a network to exchange gift cards with cryptocurrencies, tells me. "Otherwise, adoption may be limited to a select tech-savvy audience as it has largely been until now."

Crypto is too abstract

While experienced investors have no problem with the notional value and artificial scarcity that underlie many financial instruments, many people still prefer physical objects. After all, people have no problem using gold — or even Tide laundry detergent — as currency. Even though the M0 (physical currency) money supply is only a small fraction of the total number of dollars in circulation, consumers can still picture the faces of presidents when using their credit cards and digital wallets.

In this respect, cryptocurrency remains exotic and poorly understood. As blockchain technology penetrates other domains of our everyday lives, like medicine, transport and even food, these psychological barriers are likely to fall.

"Cryptocurrency remains exotic and poorly understood."

Crypto is too volatile

In the last year, the price of Bitcoin relative to the U.S. dollar rose around 2,000 percent before losing almost two-thirds of that gain, which did not escape the attention even of many casual consumers.

Cryptocurrency has also had a mixed reception in popular culture. The second season of "Mr. Robot" on the USA Network, for example, featured a story line about Ecoin, a fictional cryptocurrency. Ecoin was first supposed to save the economy after banking records were wiped out, but then it too collapsed.

Two things are likely to calm consumers' nerves about cryptocurrency volatility. Network effects are the first. As more people use and accept cryptocurrencies, the less sensitive any one of them will be to surges and drops. Crypto exchange rates are likely to become as irrelevant to consumers' daily habits as fiat exchange rates are now.

Fiat currency volatility is the second. When impending trade wars and currency fluctuations dominate the headlines, cryptocurrency will look better by comparison.

Crypto prompts too many legal questions

For investors, regulation and due diligence are just part of the cost of doing business. But consumers want and need legal tender, money that has value that is universally accepted wherever they want to spend it. As long as consumers are worried about whether they need a broker's license to spend their coin on gas and groceries, cryptocurrency will remain an investment for the brave of heart.

Even though the unregulated market some cryptoanarchists dream about is probably never going to appear, regulation for everyday use is just a matter of time. The regulatory schemes vary widely between the restrictive U.S. regime, the liberal (but tightening) Asian regimes and the arguably under-regulated European landscape.

"As long as consumers are worried about whether they need a broker's license to spend their coin on gas and groceries, cryptocurrency will remain an investment for the brave of heart."

The Chairmen of the SEC and the CFTC have already asked Congress for better tools to regulate digital currencies. The regulators are experimenting along with everyone else, and they will surely be quick to copy each other's successes.

Overall, blockchain is revolutionary in many aspects for offering new trust models. Businesses can potentially use blockchain for everything from quality assurance to securities/commodities trading, from audits to supply chain management. However, the technology itself needs more time to mature for security purposes, and the market needs more time to figure out how to best make these new trust models work for them.

Yoav Vilner is a serial blogger, CEO and startup mentor. He has been featured on Forbes, Inc, Entrepreneur and more. Follow him at @YoavVilner.

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