Bitcoin and other cryptocurrencies are the future of money and are likely to step up as the mainstream way of making payments within a decade, according to new research.
To take over from traditional fiat money, like the Pound or US Dollar, cryptocurrency will have to meet three factors – and the first is already fulfilled.
The three factors are:
- Storing value so users can decide to spend cryptocurrency when and how they like
- Acting as a medium of exchange for goods and services without the inefficiencies of a barter economy
- Acting as a measure of economic value
Challenges for cryptocurrencies
Meeting the last two criteria will require Bitcoin and other cryptocurrencies to make progress on remaining challenges such as scalability, design and regulation, says the research report Cryptocurrencies: Overcoming Barriers to Trust and Adoption – by Professor William Knottenbelt from Imperial College London and Dr Zeynep Gurguc from Imperial College Business School.
“The world of cryptocurrency is evolving as rapidly as the considerable collection of confusing terminology that accompanies it. These decentralised technologies have the potential to upend everything we thought we knew about the nature of financial systems and financial assets,” said Knottenbelt.
“In this context, we wanted to get back to basics: clarifying the nature of cryptocurrencies as a new kind of asset class, contrasting them with traditional forms of wealth, and classifying the main challenges that need to be overcome to drive their success forward.
Viable technological update
“There’s a lot of scepticism over cryptocurrencies and how they could ever become a day-today payment system used by the man on the street. In this research we show that cryptocurrencies have already made significant headway towards fulfilling the criteria for becoming a widely accepted method of payment.”
The research argues that money has evolved over time from barter and objects of value such as cowrie shells to coins, notes and payment cards.
In each case, new forms of payment emerged which rendered the older ones obsolete, such as coin minting and electronic banking. However, despite the changes, money’s three core functions have remained constant.
Provided they can progress as a medium of exchange and unit of account, as well as a store of value, cryptocurrencies represent a viable technological update to the way we spend money, says the report.