Crypto Adoption

Creating generational wealth in the span of only a few years just makes things even more interesting.

So far cryptocurrency has already seen three waves: Exuberance, Speculation, and Utility.

We are now entering (or in) the fourth wave – Adoption. This wave is being led by institutions. Soon to be followed by adoption by the common person, the fifth wave. Crypto will become part of our everyday lives given time as the ever growing investment and adoption indicates. 

From the start, crypto enthusiasts have envisioned a future where people use Bitcoin or other cryptos to pay for their coffee and groceries. They’ve looked to a future where everyone has the freedom to use money without gatekeepers or third party interference. 

Has crypto lived up to this potential and if so, where are we at in the adoption journey?

What can we expect in the future?

The Fourth Wave of Crypto Adoption

Looking back, 2020 was a standout year for Bitcoin; the value rose from $3,870 in March to over $20,000 by the end of the year, which was way past its 2017 high. By mid 2020, Bitcoin was trading at over $50,000.

The latter half of 2020 also saw Bitcoin garner massive adoption from mainstream companies such as Tesla, MassMutual, Greyscale and MicroStrategy.

Like all other technologies, Bitcoin went through an adoption curve which started with a wild exuberance phase.

Bitcoin’s exuberance was quickly followed by speculation, and then the utility phase. Currently, we might be in the early stages of the fourth wave of cryptocurrency adoption: acceptance.

In July 2020, the US Office of the Comptroller of the Currency (OCC) gave national banks the okay to custody cryptocurrency assets. The OCC later cleared Anchorage, an institutional digital asset platform, to function as a national bank.

We can see notable companies, major corporations, and even hedge funds are taking note of crypto and adding them to their balance sheets. For instance, MassMutual allocated $ 100 million to Bitcoin while MicroStrategy spent $1 billion on the top cryptocurrency. Greyscale, a leader in crypto investment management, holds over 5.5 billion as of August 2021.

Global Cryptocurrency Adoption Has Doubled in 2021

It’s not only that institutions and big companies are accepting cryptocurrencies. Individuals have begun to invest heavily in this industry as well.

In the first half of 2021 alone, global cryptocurrency users increased by more than 100% as the adoption of crypto spiked. According to a research report published by crypto.com, the total number of people using digital currencies around the globe reached 221 million in June from 106 million users in January 2021. Between February and May 2021, the number of people using crypto almost doubled.

Most of the adoption we have seen this year was mostly driven by Bitcoin, especially because of the large investment from big companies and the celebrity effect of Elon Musk. However, from May 2021, the number of Altcoin users surged drastically as most institutional investors still favour Ethereum (ETH) over Bitcoin. Ethereum, the second largest cryptocurrency by market cap, saw notable growth from both retail and institutional investors after May 2021.

These figures represent a drastic increase in acceptance from the early days of Bitcoin where only miners and very few investors took notice of cryptocurrencies. In 2016, which was just before the 2017 boom, there were about 5 million crypto users worldwide. This figure blew up to about 101 million users in 2020, before doubling in 2021.

In 2021, the first cryptocurrency exchange traded funds (ETF) were approved allowing investors to invest solely in cryptocurrency. 

It is expected that the acceptance of Bitcoin and other cryptocurrencies will continue to grow. If we compare Bitcoin to the internet, the cryptocurrency could be at the place where the internet was in 1997. If the coin continues with its current adoption rate, it will hit one billion users faster than the internet did.

While the internet took 7.5 years to go from 130 million users to 1 billion users, Bitcoin is expected to hit that milestone in four years.

But are these projections too ambitious, or do they tally with actual activities in the market? Well, the latest trends in the crypto market indicate a bright future for the industry.

Indications that Crypto Adoption is About to Explode

Companies are Increasingly Making Use of Cryptocurrencies

In October 2020, payment giant PayPal announced that its platform will start facilitating the purchase and sale of cryptocurrencies such as Bitcoin.  They would also allow their users to pay for goods and financial services using cryptocurrencies by allowing them to convert their cryptocurrencies into the fiat needed to facilitate the payment. This is a great move as it doesn’t require merchants to accept cryptocurrencies as they will receive their money in traditional fiat.

Other than PayPal, companies such as JP Morgan Chase, and IBM are also investing in and using cryptocurrencies. Most companies are only holding on to Bitcoin as an investment or as a reserve asset. For example, MicroStrategy, which produces cloud-based and software services, is using Bitcoin as its primary reserve asset.

Circle, a fintech company behind the USDC stable coin, is offering a service that enables transfers between consumer digital wallets that support different currencies. The project, known as Centre, supports transfers between many countries around the world. For instance, someone in Britain can easily convert their pounds into Korean won, and then transfer the won to a Korean friend’s crypto wallet.

DeFi Continues to Grow

Decentralized finance (DeFi) is an industry that aims at using cryptocurrencies to recreate the traditional finance industry.

In 2021, decentralised finance has drastically risen in prominence, leading many to speculate that it will eventually beat the traditional banks we now rely on. Whether or not DeFi lives up to this hype, we cannot ignore the technical and user benefits that it brings.

Decentralised finance is a form of finance that doesn’t rely on middlemen or third parties. DeFi relies on smart contracts to enforce agreements between two parties. DeFi democratises the lending process, which has driven its  popularity.

For example, with DeFi lending, credit checks become unnecessary in the lending process hence increasing the transparency of the lending process and ensures borrowers can get the funding they need. The lenders also get higher profits because of the lack of third parties involved.

Decentralised finance has also given rise to decentralised exchanges (DEXs) that allow users to trade assets without the interference of third parties. Since decentralised exchanges operate on shared ledger and do not have central management, they lack a central point of failure.

Decentralised finance is growing at an exponential speed, in fact, in August 2020, the industry was growing at the rate of half a billion dollars per week which is a testament to the growth potential of the concept.

Crypto’s Use as a Payment Method is Increasing

Since PayPal has already paved the way for payment providers to allow customers to pay for products using crypto as well as buy and sell cryptocurrencies, other providers are likely to follow suit.

For example, on December 3, 2020, Circle announced that they would be partnering with Visa to issue a Visa corporate card that will allow businesses to spend USDS anywhere Visa is accepted. This card will allow businesses all around the globe to leverage the advantages of the USDC Stablecoin and Visa’s global payment platform and network.

Having large companies such as PayPal, Visa, and Circle provide convenient ways for businesses and individuals to use cryptocurrencies to pay for goods and services will further accelerate the use of crypto as a payment method.

Planning for Central Digital Currencies (CDCs) is Accelerating

Central Bank Digital Currencies are digital tokens that have their value pegged to the value of the national or regional currency. These currencies have been proposed in organizations such as the Bank of England, China, Russia, and the UAE and Saudi Arabia.

Currently, countries such as China, Senegal, Singapore, and Tunisia have already created their own cryptocurrencies. These digital currencies have been proposed for reasons such as the decreased cost of cross-border money exchanges and the increased speed of digital currency transfers.

It is unlikely that other countries will want to miss out on the benefits of CBDCs so we can expect to see more countries continuing this trend in 2021. In fact the U.K. has started exploring the possibility already. 

Methods to Prevent Scams are Becoming Commonplace

One of the biggest problems that have been plaguing the cryptocurrency  market is the presence of scams such as rugpull scams. In a rugpull, a criminal mints new coins for a project and offers or airdrops some of the token to increase interest in the project and gain more investment and liquidity as the token increases in value.

Once they are satisfied, the scammer will then pull all the liquidity from the exchange platform and run with all the money.

Thankfully, businesses such as Locked Liquidity (LID) Protocol are working on preventing such scams from happening in future. They use smart contracts to enforce locking of liquidity on crypto exchanges like Binance. These smart contracts release the fund only when a certain threshold is reached or after a certain time period hence preventing scammers from stealing from investors.

As we go through 2021 and into 2022, we might see more methods of preventing rugpull scams from undermining the rapid growth and progress that the DeFi industry has been making.

These trends prove that we can only expect to see more growth in the cryptocurrency industry. However, there are still steps that need to be taken to further accelerate this growth. Let’s look at some of them.

Factors that Could Further Accelerate Mass Adoption

Usability
Most cryptocurrencies are not easy to use on a day-to-day basis. Widespread adoption would be faster if it was possible to access crypto in an easy, user-friendly, and convenient manner. And if the fees were lower. The introduction of such things as debit cards that make it easier to use crypto will be a major factor in how fast cryptocurrencies are adopted for day-to-day use.

Interoperability
Ever since they were first introduced, blockchain ledger technology has faced the problem of lack of interoperability. Cryptocurrencies are no different. But for them to see mass adoption faster, they will need to be able to interact and work well with other technologies that we are already using. For instance, crypto coins need to be easier to use than traditional fiat if they hope to compete on the same level.

Bifurcating the Marketplace
For those familiar with cryptocurrency, the technical specifications that are connected to this asset class may make perfect sense. However, to ordinary people, this is not necessarily the case. For crypto to continue becoming a successful asset, there is a need for the industry to create more consumer oriented products that are also applicable to institutional clients. Just like most people using the US Dollar do not need to understand the intricate workings of the Federal banking system; crypto users should not need to understand every detail of crypto and blockchain technology  for them to be able to use or invest in digital currencies.

Stability
The value of a cryptocurrency is not as stable as a fiat currency. Crypto is volatile but over time it tends to appreciate far more than a fiat currency. However, It doesn’t increase in value in a straight line or in a predictable way despite what the “experts” on YouTube might have you believe. Dogecoin dropped from 40 cents to 16 cents in the course of a month. Bitcoin lost 40% in a single day at the beginning of the pandemic. It’d be nice to go back in time to March 25, 2019. Or anytime in 2017 for that matter. 

As crypto grows up it will likely become more and more stable. Regulations, adoption, and acceptance will flatten these curves but as that happens the potential to profit for traders is likely to minimize.

What will True Mass Adoption Look Like?

It is clear that mainstream crypto adoption is underway, but it might not be clear exactly what our world is going to look like once this is accomplished. Who or what will lead the way for other brands, investors and developers to follow?

Utility wallets seem to be near the top of the list. A utility wallet such as Arax allows its users to pay for mobile recharges, and utility bills. They also enable the sharing of crypto between wallets which will allow users to exchange crypto instantly. 

Arax will also offer card top-ups and online recharges that are currently offered by many service providers in more than 140 countries. We expect to see more wallets that work in a similar way and this will be a major factor in the wave of adoption.

Mass adoption will result in the creation of even more coins and tokens. An increased number of tokens will add to the completion and better cater to the larger market, driving adoption.

Non-speculative valuation is also likely to accompany mass adoption. The biggest change we can expect is traditional legal tender routed to decentralized platforms. Although crypto got its kick-start from speculative prices, it likely that with mass adoption, it will have to base its prices on real value and market forces and not on speculation 

It is also likely that with mass adoption of cryptocurrency, fiat currencies will become more lucrative.  Before the invention of cryptocurrencies, fiat currencies had no competition. Central banks are facing competition from cryptocurrencies, something that they have never experienced before. This is obviously putting pressure on the banking system to introduce better efficiencies, transparency, regulatory action, and functionalities. This is why we are seeing global financial institutions partnering with cryptocurrencies such as Ripple to try and make their transactions less expensive.

The Future

Crypto continues to gain traction. We can see both large institutions and individual investors purchasing and using crypto assets. Many large companies and financial institutions are making their positions public. It seems obvious that we are headed towards mass acceptance, and along with it an understanding of the value that digital currencies hold. 

Although no one can predict the future with certainty, many people share the prediction that cryptocurrencies will only continue to accelerate in adoption and value. 

To quote Pixar’s beloved toy space hero:

“To Infinity and Beyond!” 

Buzz Lightyear