21 May 2022 · 5 min read

What Is Cryptocurrency Utility and Why It’s Important for the Development of Crypto Payments

Source: AdobeStock / vegefox.com



James A. Ray, Board member at Kyrrex financial ecosystem. 
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Cryptocurrencies have come a long way in the recent decade, evolving from a marginalized payment method for questionable transactions to publicly traded instruments on the largest global exchanges. Nonetheless, these drastic changes remain insufficient for fulfilling the “currency” function of the crypto. Specifically, cryptocurrencies are far from competing with fiat currencies for becoming the medium of exchange. 

We decided to consider the current state of cryptocurrencies and their utility while examining the steps needed for reaching their maximum potential. 

Definition and sources of utility

When holding a USD 100 bill, a person is highly certain of its utility. In particular, it is possible to make purchases of goods and services, invest, or acquire various financial instruments. The mentioned certainty stems from the decades of evolutionary processes within the global financial sector. Despite the longevity of the prevalent ecosystem, fiat currencies still undergo recession periods associated with a range of factors. On the other hand, cryptocurrencies remain in the early stages of their development, contributing to a list of risks.

In regard to profit generation, the introduction of the new, yet relatively reliable, crypto trading platforms and organizations have become a significant contributor toward the evolution of crypto. These instances, including the introduction of contracts paying out in bitcoin (BTC) on the Intercontinental Exchange(ICE) along with the launch of exchange-traded funds (ETFs) continue to lower the volatility of cryptoassets, making them more attractive to institutional investors.

While cryptocurrencies are gaining prominence in the traditional investment community, their utility remains vague to the global population. Specifically, the complexity of the cryptoassets and concerns related to their safety prevent a broader use. Furthermore, it is more common to say “investing in cryptocurrencies” rather than “using cryptocurrencies.” The phrasing is important in this case, as it reflects the general attitude towards crypto, namely its utilization as an investment vehicle instead of the medium of exchange.

Specific cases and statistics

A shared understanding of the underlying assets remains limited, even within the crypto community. For instance, a recent poll held in February 2021 indicated that only 16.9% of crypto buyers have a full understanding of digital currency. Another 33.5% had an “emerging” level of understanding. These values reflect the opportunistic approach towards cryptocurrencies in their treatment as investment assets. 

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The study conducted by the National Opinion Research Center (NORC) at the University of Chicago indicated that the primary reason behind people avoiding investments in cryptocurrencies is their lack of understanding. 62% of respondents cited this reason, followed by security at 35% in second place. The availability of resources for investing and lack of knowledge related to the investment process was in the third and fourth spots respectively. Volatility and spending limitations were in the fifth and sixth spots. 

Why aren't people investing in cryptocurrency?

Survey question: Which of the following are reasons you have not invested in cryptocurrencies? Select all that apply. Source: NORC's AmeriSpeak Omnibus Survey, conducted June 24-28, 2021 with 1004 adults nationwide. N=500 adults who are familiar with cryptocurrency, but have not invested.

 

The survey results indicate that the lack of understanding was the most frequently chosen reason against choosing an investment in cryptocurrency. Since the respondents could choose several reasons, it is evident that cryptocurrencies will become more prominent with more people gaining knowledge about their nature and investment process. The rising popularity of cryptocurrencies and their presence on more reliable exchanges will also dampen their volatility and increase spending capacity.

Medium of exchange as the strongest utility

Modern cryptocurrencies are far from becoming the medium of exchange. In fact, certain experts cite the possibility of using crypto for real payments as a myth. The length of time needed to verify the transaction and substantial fees were among the main reasons cited behind the statement. Specifically, the average fee for the BTC transaction was USD 20 [On May 19, it was USD 1.92]. The associated investment volatility contributes to the treatment of crypto as high-risk assets potentially, yet offering a high reward. At the same time, the long-term strategies related to the most prominent cryptocurrencies outperform short-term trading. 

The volume of transactions in cryptocurrencies, such as BTC and ethereum (ETH), peaked between 2017 and 2021. However, the periods of interest usually end with a sharp decline in the volume of market transactions. These trends reflect the importance of developing more traditional uses for cryptocurrencies including an ability to store value and serve as a medium of exchange. 

Bakkt, a subsidiary of ICE, is a leading provider of digital wallets for storage and utilization of various currencies, including BTC. Bakkt collaborated with Starbucks to ensure the largest participation via the Starbucks app. The eventual use of crypto by a critical mass of service providers and retailers will contribute to the utility of crypto. 

Future potential

The future potential of cryptocurrencies stems from the level of their acceptance by consumers and businesses. It is also important to note that the governments, including Japan, China, and Sweden, are already considering the launches of their digital currencies. These events may occur alongside the national bans of cryptocurrency transactions, as recently happened in China, which is another source of risk. 

While cryptocurrencies continue the progression through the growth and development stage, there is evidence that cryptoassets have a strong potential based on the current levels of demand. In this context, it is important to observe the implementation rate of cryptocurrencies amongst business owners. 

Simply said, when you can buy coffee for crypto at your local coffee shop and groceries at a retail store, cryptocurrencies will be on the path to realizing their maximum utility potential. 
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Learn more: 
- Russia to Legalize Crypto for Payments 'In Some Format or Other' - Minister
- CoinCorner Launches NFC-Enabled Bitcoin Card Powered by Lightning Network

- Surging Consumer Interest in Crypto is Accelerating eCommerce Adoption - Survey
- Solving These 7 Challenges Would Accelerate Bitcoin Adoption 

- Crypto Payments on Shopify
- Renowned Luxury Brand Gucci to Accept Bitcoin, Ethereum Payments in the US

- Bitcoin Lightning Network Payments Jump Over 400%, 80M Users Have Access to Network
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