Should you still care about cryptocurrencies?
The business case for Bitcoin never quite materialised, and chances are it never will
The past decade has seen a swathe of new businesses develop off the back of the cryptocurrency phenomenon, but, unlike the broad shift toward digital payments, currencies like Bitcoin have generally been ignored by wider industries.
Of course, those seeking to service the digital currency industry have seen major disruption, particularly when it comes to learning about new technology and apply existing practices and rules to it. But for those not dealing directly with the space, the impact has been far smaller.
With Bitcoin now in its 10th year, interest in the volatile currency is perhaps lower than it has ever been and, as industries continue to figure out precisely what digital currencies are good for, we're still waiting on that widespread adoption that was always promised.
Where crypto makes a difference
The cryptocurrency hype has now vanished, along with the fear of missing out - businesses no longer feel that sense of urgency to get involved. Analysts expect to continue to see a number of businesses adopt cryptocurrencies this year for specific use cases, but many companies are either still waiting for real value to appear, or are apathetic to its existence.
One such use case still gaining traction is the use of digital currencies to replace or supplement traditional monetary asset systems, "which today bloat with inefficiencies, particularly in the developing world," says Michael Fluhr, a partner at law firm Squire Patton Boggs.
"While money and asset transfer in wealthier countries is often sufficiently timely and cheap that it does not rouse our attention, in developing areas money or asset transfer can take days and require non-trivial expense... Some dream of a world in which money or securities can fly quickly and cheaply from one individual or business to another, anywhere in the world, without third-party intermediary friction."
Gartner research director Fabio Chesini believes digital currency's ability to enable more fluidity across border exchange is what will help it finally go mainstream.
"Cryptocurrencies bring a new pool of liquidity into the game. It's a new asset class that can empower cross-border payments. Depending on adoption volumes this could even impact the international balance of payment for different currencies," he points out.
Loyalty schemes could soon take on a form more akin to Bitcoin than a reward point
Organisations are also looking at "trading in asset-backed crypto tokens", such as a proxy digital Dollar, to allow transactions to "circumvent traditional payment rails", according to IDC research director Craig Wentworth. It's this idea of getting around traditionally slow-moving systems that will prove to be revolutionary, he explains, though it's believed it will be a very long time before we see widespread changes.
Yet cryptocurrencies still have a bright future when it comes to replacing non-currency tokens like loyalty points that customers often associate with supermarkets, airlines, and even coffee shops.
"Loyalty schemes are closed groups with large user bases," explains Ian Robertson, an IET Fellow and visiting professor of Computer Science at the University of Warwick. "The move to a cryptocurrency could offer greater flexibility and means for exchange of value."
Pushback against crypto
Cryptocurrencies do have many benefits, including anonymity and cost-efficiency, but there are still several roadblocks holding back adoption. The learning curve for incorporating cryptocurrencies into businesses is steep, and the inherent volatility introduces too much unpredictability.
"The cost to accept them is hard to justify," James Wester, IDC Insights research director tells IT Pro. "It's difficult to use a currency where the value fluctuates so wildly on a regular basis - plus there's a lack of demand. There simply isn't a large groundswell of consumers or businesses looking to use cryptocurrencies to make payments."
Many countries are seeking to limit the use of cryptocurrencies, or ban them outright
There's also the issue that cryptocurrencies remain stuck in a regulatory and compliance quagmire. Attitudes towards the market differ substantially across the world, and while some countries are seeking to reconcile the problem, including Singapore, Hong Kong and Japan - the latter already working on regulatory frameworks to bridge fiat currencies and cryptocurrencies - some have moved to ban cryptocurrency use outright.
"Governance models need to evolve to become more transparent in order for society to understand how cryptocurrencies are run to strengthen trust and perception of this ecosystem," notes Gartner's Chesini. "Another key thing to consider is the customer experience. Easy access and interoperability are needed to improve customer perspectives around cryptocurrency and facilitate mass adoption."
Do we even need blockchain?
So while enterprises sit back and watch what's happening around cryptocurrencies, their real interest right now is in the technology behind them and the digital services they can offer.
There are several consortia developing and using blockchain technologies and associated applications. Some of these applications involve cryptocurrencies and public blockchain, but more are interested in using private blockchain technology for other applications.
"Many of these are in the financial sector - FX trading, future and options trading, hedging," Robertson explains. "The Bank of England is using blockchain for gold ownership and transfers and the German Central Bank for bank-to-bank settlement.
Almost all are only at the trial stage. They're also being used for energy trading and supply chain management - similar closed group bidding and sales functions."
Unfortunately, even blockchain suffers from the same overhype that plagued cryptocurrencies, and many use cases for the technology are in reality just overcomplicated solutions to a business problem, or a solution to a problem that doesn't exist in the first place. It's therefore hugely important to consider whether your problem or opportunity really does have blockchain affinity.
"85% of the 'so-called' blockchain projects don't actually need a blockchain," Gartner's Chesini explains. "When you go through the route of pure distributed ledger technology, whatever you do with blockchain you're likely better off solving the problem with other technologies."
Where should you spend your time and money?
Chesini identifies two 'blockchain worlds' that most businesses occupy. First is the 'blockchain-inspired' environment, where the notion of private blockchain excites companies enough to develop their own projects that may not necessarily include the technology itself.
The second is the 'blockchain complete' world, which incorporates entire public blockchain and asset-based tokenisation projects - the all-in strategy. He advises that in order for businesses to really start seeing value, they should keep a foot in each.
"The sweet spot is where you place yourself between the two worlds - work on blockchain-inspired projects while you look at how you're going to transition towards blockchain complete," he advises. "For example, start working in the private permissions space, but with the perspective on how you can integrate this with blockchain complete in the future.
"If you're too early you might lose a lot of money, but the same goes for those who come to the party too late. Keep looking at both worlds and how you can bring them together."
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