It has been over a decade since the first transaction took place on the Bitcoin network, and since then, the digital currency has evolved leaps and bounds. While the initial days of Bitcoin were spent in the Dark Web and were used for malicious transactions, slowly and steadily, the coin found recognition because of its potent ability to fill in the gaps that exist in the current "money" world.
Last month was pretty significant for Bitcoin and other cryptocurrencies as two countries gave a very, very different perspective over this digital coin- First, it was El Salvador which became the first country in the world to adopt Bitcoin as a legal tender, and on the other side China which carried out a massive crackdown on the digital coin and cryptocurrencies asking its financial institutions including banks and online payment firms do not provide any cryptocurrency-related services.
Like the two mentioned above, many countries are still in a cliffhanger on which side they should choose concerning Bitcoin and cryptocurrencies. While few countries have outrightly banned like Iran and Saudi Arabia, a few of them such as India, Russia, Brazil, etc., and others, are still to make some concrete decisions for regulations of these digital assets.
Even though there have been various opinions regarding digital coins and tokens, certain features still stop cryptocurrencies from going mainstream and challenging the fiats. Lets us look at a few of them
1. Image marred by scams and criminal activity: In its first decade of existence, Bitcoin has majorly been in the hands of scamsters and evil characters such as criminals, drug peddlers, etc. The anonymous feature of blockchain technology attracted many criminals, and soon, these blockchain-based coins became the currency of the black market and dark web. While the industry is maturing, people still associate Bitcoin and other cryptocurrencies with criminal activities and think twice before associating with them. Also, the crypto bull market of 2017, driven by numerous ICO's (Initial Coin Offerings), led to many scams where project founders fled away with investors' monies, making both people and regulators vigilant. Till the time this harmful air around Bitcoin and cryptocurrencies is not cleared, it might be difficult for people to believe in them, thus becoming a big hurdle in mass adoption.
2. The technological inefficiency and the "Trilemma": Although blockchain and cryptocurrencies have been touted to be a game-changer and have many perks, by design, blockchain is still pretty nascent, and a lot of inefficiencies still exists. Even with all efficiencies, Bitcoin's block size is restricted to 1 MB and generates blocks every 10 minutes making it relatively slow. This led to the rise of Ethereum, which tried to cover all the flaws of Bitcoin, but it still wasn't enough leading to scalability and network congestion issues. Since then, many projects have tried various solutions, but it's too early to say which holds the key. In the words of Ethereum Vitalik Buterin, when it comes to blockchain and crypto assets, it was only possible to choose two out of three features, security, scalability, and decentralisation, thus forming a Scalability Trilemma which is still away from being breached.
3. Scalability Issues: One of the most significant issues with cryptocurrencies' mass adoption is Scalability. While the technology has shown potent use of a limited number of users, it still needs to be tested with a sizable population. Ethereum was the first to test it, but as the users started mounting, the blockchain started getting congested, and the gas fees started rising, leading to expensive inefficiencies in transacting.
4. Regulatory Clarities and Issues: If you ask anyone who has been around in the crypto space for some time, they would say that the most significant risk for cryptocurrencies adoption is regulatory clarity. From country to country, from person to person, the opinion on cryptocurrencies is highly varied. While regulations have always struggled to keep up with advances in technology, the story with cryptocurrencies and blockchain is no different. Also, what concerns the regulators is that decentralised systems impact participants directly, making them vulnerable. Hence, there is a powerful argument for regulations, and regulators need to understand the technology and its impact on businesses and consumers before they draw the regulatory lines around cryptocurrencies.
5. Lack Of Skilled Talent: Blockchain and cryptocurrencies are relatively new and lack talent that entirely understands this bit of game. Whether it is integrating the already existing latent system to blockchain or creating a new project from scratch, getting the right talent is extremely difficult and expensive. Hence there is a lot of reliance on external talent as in-house talent, which comes with its own set of problems like data loss and security concerns. While, in recent years, the scenario is changing as there is a lot of talent moving from traditional software and financial services firms to blockchain and cryptocurrencies, it's still distant from fulfilling the much-required demand.
6. The ESG Factor – Bitcoin and the Environmental cost: Blockchain and cryptocurrency transactions require tonnes and tonnes of computing power to keep the blockchain up successfully validate transactions. And as the adoption is increasing, more and more power is being consumed. Further, add the cooldown cost of these machines that work round the clock to support the network. Some of the reports around this do not give a happy picture. For example, a University of Cambridge study has stated Bitcoins consume more than 120 Terawatt Hours (Twh) each year. In another report published by Galaxy Digital and confirmed by International Energy Agency (IEA), the annual electricity consumption of the Bitcoin network stood at 113.89 terawatts per hour per year (TWh/year). This is relatively high compared to the more established exchange of value, such as the banking systems consume 263.72 TWh/yr while gold mining consumes around 240.61 TWh/yr of energy. Although at the same time, several projects are attempting to solve this problem, it's still pretty nascent to comment whether there is a solution to this.
7. Cryptocurrency's volatility is vicious: Last but not least, a lot of regulators advocate against cryptocurrencies is because they are highly volatile and extremely risky. Since cryptocurrencies are not governed by any central or regulatory authority or a controlled emission mechanism, they can be highly volatile. This nature of cryptocurrencies can be alluring for some high-profile investors. Still, unlike with gold or other assets, the general population is unwilling to invest in cryptocurrencies or hold them in the form of "money." This highly volatile nature coupled with the high user entry barriers has stumped the widespread adoption of cryptocurrencies.
So as we see, there is still some time for someone to walk into a Starbucks and buy a coffee with a Bitcoin or any other cryptocurrency. Still, like any other technological advancements, cryptocurrencies may take some time to reach a stable form that can be introduced into the market. Like any technological innovation, blockchain too may follow the gradual path of adoption over the coming years.
The list of Blockchain adoption challenges mentioned above clearly underlines the need for technological improvements. And the industry is very busy solving them. If these solutions are found and backed by proper regulations sooner than later, the mass adoption of cryptocurrecnies would soon be a reality.