The cryptocurrency market might be about to enter a new era of stability and, ultimately, legitimacy.
In 2017 the public profile of cryptocurrencies has increased dramatically, partly fuelled by the best known variant Bitcoin’s dramatic rise in value. Over a month this summer, Bitcoin doubled its worth from £1,515 ($2,000, €1,700) to £3,030 ($4,000, €3,400), according to CoinDesk. In 2010, when the currency first appeared, you could buy around 2,000 Bitcoins for just five dollars.
But while such volatility has attracted investors looking for a fast return, massive fluctuations in value make tokens such as Bitcoin a poor method for buying everyday goods. This unpredictability is also highly debilitating when it comes to currency conversion and ATM use, with exorbitant fees often charged by providers of such services in order to mitigate risk. This leaves consumers uninterested in, even actively wary of, the technology, with brands consequently unlikely to integrate it into their payment systems.
But the cryptocurrency market might be about to enter a new era of stability and, ultimately, legitimacy. This is thanks to a number of recent announcements by major economies intending to launch government-backed tokens.
Japan hopes its iteration, J Coin, will help alleviate the country’s heavy dependency on physical cash, which still accounts for 70% of the value of the country’s transactions, and would be exchanged at a one-to-one rate with the yen. Spearheaded by a consortium of banks that include Mizuho Financial Group and Japan Post Bank, it will be launched to coincide with the 2020 Tokyo Olympics. In return for managing the currency as a free service, these banks would have access to detailed information on consumer spending habits.
The benefits for the country are obvious, reducing the numerous costs associated with manufacturing and administrating a physical cash eco-system, something which is projected could save £67.4m (¥10bn, $88.8m) a year.
With increasing state endorsement, brands will need to realise that cryptocurrencies are leaving the wild periphery of the fin tech world.
It will also allow greater oversight for regulators, potentially proving a vital tool in the fight against black markets. This is one of the reasons that India’s central bank is mooted to be looking at creating its own cryptocurrency. Last year’s demonetisation, during which the country removed hard currency denominations from circulation while creating incentives for using digital transactions, was intended to choke the nation’s huge shadow economy. A state-backed cryptocurrency, reportedly to be named the Lakshmi, would make such tactics far easier to implement.
Meanwhile, Dubai has announced that it will develop emCash, an encrypted blockchain-powered digital currency that will allow residents to pay for both government and private goods and services. ‘A digital currency has various advantages – faster processing, improved delivery time, less complexity and cost, to name a few,’ says Ali Ibrahim, deputy director general of Dubai Economy. ‘It will change the way people live and do business in Dubai, and mark a giant leap for the city in harnessing game-changing innovations to improve ease of business and quality of life.’
These digital denominations are likely to increase consumer trust in the concept of cash that exists only as information. This will come both through their relative stability as well as through the confidence inspired by their association with reputable commercial banks and government institutions.
For brands it will mean that they will have to implement strategies across their businesses for accepting payments through consumers’ coin wallets. While some retailers are experimenting with such payment options, such as South Africa’s Pick n Pay, and certain etailers have integrated the technology, with Expedia perhaps the most high profile, such attitudes are far from universal. In fact, Morgan Stanley recently published a report detailing that only 0.6% of the top 500 online retailers accept bitcoin. With increasing state endorsement, however, brands will need to realise that cryptocurrencies are leaving the wild periphery of the fin tech world and maturing towards respectability.
For more on how consumer attitudes to how they pay for products are changing, read our macrotrend The New Value Economy.