Why has crypto failed as currency?

Cryptocurrency, as its name suggests, is supposed to be a currency, right? But is it a currency? or something else? The problem with crypto is that people don’t use it as a currency, but rather trade with it or invest in it for future profit. This means they buy it, like any other physical or digital asset, and then sell it. This is not how mainstream currency works. The mainstream currency is the money that is widely accepted and used by the general public, businesses, and institutions for everyday transactions, such as buying goods and services, paying taxes, or saving for the future. Mainstream currencies are usually issued and regulated by a central authority, such as a government or a central bank, which is not quite that important in our case, but mainstream currencies have a stable and predictable value. Mainstream currencies are also backed by the trust and confidence of the users, who believe that the money they hold will retain its purchasing power and usefulness over time. Some examples of mainstream currencies are the U.S. dollar, the euro, the Japanese yen, and the Chinese yuan.
Cryptocurrencies are digital assets that use cryptography to secure transactions and control the creation of new units. They are decentralized, meaning they are not issued or regulated by any central authority, such as a government or a bank. They are also designed to be scarce, meaning that there is a limited supply of them.

Cryptocurrencies have many features that make them attractive as potential currencies, such as decentralization, security, and transparency. However, they have not been widely adopted for everyday use by most people. Instead, they are mostly used for purposes such as speculation, trading, or investment. Some of the reasons why cryptocurrencies have not succeeded as currencies include:

Instability: Cryptocurrencies are very unstable, meaning that their values can change a lot in a short period. This makes them untrustworthy as a way of exchanging and storing value, as users cannot be certain of the buying power or the future worth of their crypto assets. For example, bitcoin, the most popular cryptocurrency, hit a high of almost $69,000 in November 2021 but fell to below $20,000 in June 2022.

Scalability: Cryptocurrencies are constrained by their technical design and infrastructure, which affect their ability to handle transactions fast and effectively. For example, bitcoin can only deal with about seven transactions per second, compared to Visa, which can manage up to 65,000 transactions per second. This causes congestion and delays in the crypto network, which lowers its usefulness and convenience as a currency.

Regulations: Cryptocurrencies are subject to different and often contradictory regulations in different countries and jurisdictions, which create doubt and risk for users and investors. For example, some countries, such as China, India, and Turkey, have prohibited or limited the use of cryptocurrencies, while others, such as the US, the UK, and Japan, have enforced various rules and taxes on crypto transactions. This makes it hard for users to follow the law and to access the crypto market.

Adoption: Cryptocurrencies are still not widely used or accepted by the general public, businesses, or institutions, which limits their potential as currencies. For example, according to a survey by Statista, only 9% of the global population have used or owned cryptocurrencies in 2021. Moreover, according to a report by Chainalysis, only 1.3% of the total crypto transactions in 2020 were for merchant services, while the rest were for trading, investment, or illicit activities.

threats: Cryptocurrency transactions are anonymous, which means that they do not expose the real identities of the users, but only their public addresses, which are random sequences of letters and numbers. This can be advantageous for users who want to preserve their privacy and safeguard their personal or financial information from third parties, such as advertisers, hackers, or governments. However, it also means that the transactions are hard or impossible to track, which can enable the use of cryptocurrencies for illegal purposes, such as money laundering, tax evasion, ransomware, terrorism, and drug trafficking. Criminals can use cryptocurrencies to send or receive funds across borders, without any verification, identification, or oversight, and avoid the detection or prosecution of law enforcement agencies. And this is the reason why most governments want their people to refrain from using it, and regularly complicate the use of cryptocurrency within their countries.

Cryptocurrencies have not been able to become mainstream currencies for everyday use, despite their features. There are various reasons for this, such as volatility, scalability, and regulation. Most people who use cryptocurrencies do so for other reasons, such as speculation, trading, or investment. However, this does not imply that cryptocurrencies are worthless or have no future. On the contrary, cryptocurrencies have many benefits and innovations that could transform the financial system and the digital economy. For instance, cryptocurrencies could facilitate faster, cheaper, and more transparent cross-border payments, provide financial inclusion and empowerment to the unbanked and underbanked populations, and generate new business models and opportunities. Therefore, cryptocurrencies could still play a significant role and have a positive impact on the world, even if they are not used as currencies.