In a new research, Imperial College London and eToro have found that cryptocurrencies such as Bitcoin offer a viable evolutionary ‘next step’ for money and could become a mainstream form of payment within the next decade.

Of the three fundamental roles of traditional fiat money – store of value, medium of exchange, and unit of account – the report, entitled “Cryptocurrencies: Overcoming Barriers to Trust and Adoption,” argues that cryptocurrencies are already equipped to fulfil one role: acting as a store of value.

According to Imperial and eToro, there are six existing challenges that cryptocurrencies will have to address in order to meet the last two criteria and become a mainstream method of payment. These are:

• Scalability - many cryptocurrencies are built on blockchains that aren’t designed to facilitate high volumes of transactions at present. The mining community of individual blockchains needs to prioritise solving scalability issues in order to succeed.
• Usability - like any invention, user-friendly design is at the core of mass adoption. Cryptocurrencies can be complex and require specialist understanding.
• Regulation - this is currently fragmented with different countries pursuing different regulatory routes. Without a standardised global approach to regulation, Bitcoin will struggle to gain mainstream traction.
• Volatility - all fiat currencies fluctuate in value. However, current significant volatility in cryptocurrencies hinders their ability to be considered a store of value. As price movements settle the store of value function can be realised.
• Incentives - any new financial ecosystem requires careful thinking about how its reward system will influence behaviour. If this isn’t built in the right way, then the system will quickly be manipulated by some users to the detriment of others.
• Privacy - while blockchains provide a transparent single source of truth, different levels of privacy available to different users is often attractive. Without this, some people will stay away from cryptocurrencies.

“The history of money is a history of evolution, of new technology replacing old to improve the transfer of value from one person to another. Cryptocurrencies represent a next step on this journey,” Iqbal V. Gandham, UK Managing Director of eToro, who commissioned the research, said.

“The first ever Bitcoin transaction took place a little over eight years ago and today we are already seeing it begin to meet the requirements of everyday money. Given the speed of adoption, we believe that we could see Bitcoin and other cryptocurrencies on the high street within the decade. There are of course barriers to mainstream adoption, but they are far from insurmountable.

The authors noted that money has evolved significantly over time, with each new form rendering older ones obsolete such as coin minting and electronic banking. Also, each evolutionary stage of money has brought about a reduction in payments friction.

However, despite the changes, money’s three core functions have remained constant throughout. Provided they can demonstrate progress as a medium of exchange and unit of account, as well as a store of value, cryptocurrencies represent a viable technological update to the way we spend money, the authors said. Given their design principles, the paper concludes that the widespread use of cryptocurrencies is a natural next step to reduce friction in the global economy.

“Perhaps the thing that will ultimately tip cryptocurrencies into mainstream is the issue of cross-border payments. These remain difficult and expensive in many cases. Cryptos are cross-border by design, enabling wealth to be transferred far more easily. The potential for this to be a leading use case looks very strong,” Gandham added.