Why is Crypto not yet a Default Payment System?

In recent years, cryptocurrencies have become the talk of the town by bringing in the much-needed technological revolution in finance and the economy. It has gained a lot of popularity due to its extreme potential for businesses and individuals alike. However, it can be noticed that people are wary of using cryptocurrencies due to various reasons. Although cryptocurrencies and blockchain technology portray an enormous facade of success, the statistics in terms of the growth of digital assets still lie below the ultimate goals. Nevertheless, people in the business sector and even individuals engage in peer-to-peer transactions based on cryptocurrencies. The following paragraphs summarize the basic causes of cryptocurrencies not yet possessing the status of the default payment system. These reasons stem from the nature of the cryptocurrencies, the strong presence of fiat, and their public reliability on them, among many others.

Here are the various reasons why crypto payment is not yet considered a default mode of payment:

• Controversy since origin - Since 2008, when Bitcoin was developed by Satoshi Nakamoto, critics have constantly generated controversy regarding the very nature of cryptocurrencies. They have opposed the claim of the global crypto community stating that cryptocurrencies do not pave the way for a brand new, equitable financial system. Rather, they play a crucial role in fraudulent transactions and criminal activities. They support their opposition by emphasizing the absence of any legal or authorial recognition and validity.
• Governments refuse to give the status of legal tender - On one hand, countries (less in number) like El Salvador have adopted cryptocurrencies as normal currencies. But on the other hand, the majority of countries like the United States of America refuse to adopt blockchain payment as the default payment system. Government authorities can not control crypto transactions, and it is this lack of hold on the crypto market that governments do not provide legal status to these currencies. Other reasons provided by these economies include nefarious activities, convenience for criminals to work around the system, undermining the government and its rules, and the high probability of crypto payments destabilizing the existing, rigid financial system in the countries. Therefore, the three-fold aspects challenging the process of being adopted as the default mode of payment can be summarized as follows:

1. The threat of undermining the government’s role in the financial system, posed by bitcoin or any other cryptocurrency
2. Inability to regulate crypto transactions
3. Arena for criminal activities
4. Can lead to citizens working their way around capital controls

• The irreplaceable and trustworthy fiat currency - Fiat currencies are placed even above online modes of payments. Undoubtedly, people find it difficult to trust cryptocurrencies because they are volatile, constantly facing price changes, and are not propagated by their governments as reliable and trustworthy. Fiat currency, on the contrary, is backed by government credibility and is used by everyone as it is the conventional way of exchange. For instance, the government of the USA relies completely upon the central bank of the country, which is the Federal Reserve. In the same way, the people of India trust the Reserve Bank of India to manage the fiat currency rupee. These central banks print and circulate the money in the market, and citizens blindly rely on the printed currency backed by these national-level authorities. Governments encourage this control over currencies and constantly regulate the use of money through intermediaries. Crypto payments are made out of nowhere since knowing the source of cryptocurrencies is as difficult as finding a needle in the haystack!
• Decentralized system of cryptocurrencies - Crypto transactions pose the risk of upending the existing financial system in any country due to their decentralized nature. Unlike the requirement of a central bank for creating and controlling fiat currency, cryptocurrencies do not pose the need for any such regulating authority as anyone can mine them. Transactions done on a one-on-one basis get recorded in the blockchain only when all nodes provide their approval of a particular transaction. In other words, crypto operations among various individuals are capable of rearranging the ledger, and therefore, unlike a rigid and conventional financial system of a country, cryptocurrencies are very flexible. Without any central authority for crypto transactions, the power to modify the supply is distributed among the users. In this way, the decentralized system of cryptocurrencies undermines the role of government or any central authority. The following steps summarize how this decentralized crypto network is run:

1. Nodes receive the information about new crypto transactions
2. Each node functions to collect these new transactions into one block.
3. It also tries to find the evidence of activity for its block.
4. When it gets this proof of work, the block is broadcasted to other nodes.
5. Only after checking the validity of these broadcasted crypto transactions do nodes accept the block.
6. This approval is provided by creating the next block with its base as the hash of the first block.

If any node in the loop rejects any crypto payment or transaction, it will be rejected immediately. Thus, the decentralized nature of this system comes into play.

• Ties with illegal and fraudulent activities - Citizens and governments visualize a big red flag when it comes to making payments through a crypto payment processor. Due to their association with people or organizations represented by their addresses and their camouflaging nature, cryptocurrencies give a lot of scope for criminal activities. As a result, blockchain payments have less trustworthiness. There are various instances in which bitcoins have been used for illegal activities, for instance, in the Silk Road Case. It was an online marketplace selling illegal drugs, weapons, etc., allowing buyers to use bitcoins as the mode of blockchain payment.
• Volatile in Nature - People hesitate to use cryptocurrencies even if they buy from government-approved platforms because of their highly unstable nature. Most people perceive cryptocurrencies as investments, and therefore when they look at the rollercoaster-like graph showing the shifts in the prices every day, they tend not to get into the crypto market. Cryptocurrencies are volatile in nature, and crypto payment processors are considered unreliable by the citizens.

Another reason for cryptocurrencies not to become the default payment system in an economy is the transaction speed. People are habitual of instantaneous payments via cash or online modes. Crypto payments, however, take around 10 minutes to get over, which acts as an obstacle to their usage. Moreover, users have to pay an amount as a charge to the miners for their services. This, too, discourages the use of cryptocurrencies in everyday life. Many people trade cryptocurrencies for fiat currencies and then use them for purchasing objects worth the transaction.

Concluding Remarks

All of these reasons contribute to the less adaptable feature of cryptocurrencies, preventing them from being used as the default payment system. Although, there are many countries that have opened their doors to cryptocurrencies and are encouraging crypto payments through crypto payment processors. For example, amidst the crisis, Ukraine started collecting donations in the form of cryptocurrencies. Also, Singapore is witnessing many small and big businesses providing the option of blockchain payments to customers. And the country is aiming at becoming the global hub for cryptocurrencies. These examples, however, cannot be generalized as there are many major economies cautious about using cryptocurrencies and incorporating crypto payment processors. Whether this skepticism arises from the criminal ties, volatile nature, questionable validity and credibility, less assurance, no control of governmental authorities, or the decentralized system of cryptocurrencies, blockchain payments have several advantages as well. Their advantages constitute the technological mastery of human beings and further revolution in the financial economy.