Cryptocurrency — it just might go down as the word of the year for 2017.
With bitcoin and other currencies reaching all-time highs in December, thousands of investors are getting in on the crypto-boom. However, not everyone has as much faith in these digital currencies. The institutional investors and regulatory authorities in banking and finance generally regard cryptocurrency as a dangerous, speculative commodity bubble.
{mosads}That is not necessarily an accurate picture, though. And more importantly, we need to ask ourselves: can this negative outlook on cryptocurrency hold back other positive changes that might come alongside a broader awareness and understanding of the technology that drives it?
The double-edged sword of regulating cryptocurrency
Regulation is a double-edged sword for cryptocurrency. While regulation can create more reliable protections to encourage investment, it can also scare away many seasoned traders. If governments saddle digital currency with too many regulations, it increases the cost of doing business, making it prohibitive to institutions who might otherwise be interested.
However, the decentralized nature of the blockchain technology powering cryptocurrency, as well as the currencies’ own multinational and borderless nature, makes effective regulation extremely difficult. More than anything, regulating cryptocurrency just forces traders into less-regulated — and often much less secure — markets. Regulating cryptocurrency would require a coordinated, international effort on the part of governments around the world, which is simply not going to happen.
Not surprisingly, there is a positive correlation between news on digital currencies’ tolerance within major economies and their price. Bitcoin plunged significantly after China banned ICOs, or initial coin offerings, fearing that they would open the door for capital outflow and money laundering. However, the coin’s price ticked up after the Japanese government recognized bitcoin as legal tender.
Even with regulation, it’s difficult to control the crypto-market. If investors decide bitcoin has become too restrictive, they can simply move on to the next one. Litecoin, Ripple, Ethereum, Dash, even Dogecoins — there’s no shortage of alternatives to bitcoin.
Blockchain beyond the bitcoin
Of course, government regulation isn’t the only obstacle to broader adoption of blockchain-backed digital currency. We can point fingers at regulatory bodies and governments trying to restrict cryptocurrency from flowing freely across borders, or at risk-averse investors, but no single culprit is really to blame for hesitancy regarding blockchain.
These players that we see as the root of the problem are just an outgrowth from the real issue: not enough people understand what the blockchain is, how it works, and the benefits it presents.
Widespread confusion and skepticism around cryptocurrencies are slowing down blockchain adoption. We need to remember that, while cryptocurrency was invaluable to blockchain, serving as both a proof-of-concept and brilliant advertising, blockchain and bitcoin are not the same thing.
Everyday people look at the nature of bitcoin and other cryptocurrencies and their lack of an intrinsic value and can’t wrap their heads around it. Others might be turned off by its volatility. This colors peoples’ view of the entire concept and fires up the skeptics — the institutional investors and the C-level executives, as well as ordinary people.
It’s important to distinguish between the blockchain and the currencies exchanged through a blockchain. The value of bitcoin and other cryptocurrencies might change, but the blockchain concept has an intrinsic value in its ability to simplify transaction and recordkeeping processes. As a tool, blockchain holds tremendous potential to make processes more efficient and cost-effective, with diverse applications:
- Banking: Replacing traditional automated clearinghouse (ACH) payments with blockchain could save banks a massive $20 billion each year by eliminating redundancies. Customers would also benefit from instantaneous payments clearing.
- Government: Storing voter information and ballots in a blockchain can make voting a much simpler and more straightforward process. It would also improve security by minimizing concerns about hacking and voter fraud.
- Medicine: Concerns about mix-ups and other potentially life-threatening errors can be largely eliminated by storing medical records in a blockchain. Doctors won’t need to transfer and verify information over and over; instead, a single, constantly updated record will be accessible to all.
- Retail: More efficient insight on current store stock will allow for better use of retail resources. Businesses can be more responsive to customer preferences and interest, and can engage in more precise and insightful market analysis.
Wider understanding is the first step
It’s no surprise that the average consumer has trouble understanding blockchain’s value. There are plenty of people who have spent decades in payments and finance, but who still can’t really “get” the blockchain concept. Blockchain will continue to be a radical, fringe tool until it gains wider acceptance and understanding.
I’m not saying that every single consumer needs to fully understand the ins and outs of blockchain operations. However, we need to start speaking more about the benefits blockchain presents. This will help bring the technology into the mainstream, and make consumers and businesses alike more aware of the opportunities it presents.
Monica Eaton-Cardone is an entrepreneur and business leader with expertise in technology, e-Commerce, risk relativity and payment-processing solutions. She is COO of Chargebacks911 and CIO of its parent company Global Risk Technologies.