“There’s a lot of skepticism over cryptocurrencies and how they could ever become a day-to-day payment system used by the man on the street. In this research, we show that cryptocurrencies have already made significant headway towards fulfilling the criteria for becoming a widely accepted method of payment.”
The researchers worked to determine how close crypto is to satisfying three “fundamental roles” of traditional fiat currency:
- Store of value: the value transcends time, so individuals can choose when to spend their money
- Medium of exchange: the money can be exchanged directly for goods and services, avoiding barter
- Unit of account: the money acts as a measure of value within the economic system
Notably, other payment evolutions (e.g. coin minting, electronic banking) served all three of these core functions and each state of the evolution reduced friction in dealing with payments.
The paper notes that cryptocurrencies are already serving as a “store of value.” And given that crypto is designed to reduce friction, the paper concludes that there’s no reason these new cryptocurrencies can’t go widespread if can also progress to being a “medium of exchange” and “unit of account.”
“New payment systems (or asset classes) do not emerge overnight but it is worth noting that the concept of money has evolved – even in our lifetime – from cash to digital or contactless payments.”
The paper also sets out six existing challenges for cryptocurrencies to address on their way to becoming a mainstream method of payment including scalability, usability, regulation, volatility, incentives, and privacy.
Overall, it’s a pretty bullish piece of research from the Imperial College.