In recent years, cryptocurrency—particularly Bitcoin—has demonstrated its value, now boasting 14 million Bitcoins in circulation. Investors speculating on the future possibilities of this new technology have driven most of the current market capitalization. This is likely to remain the case until a certain price stability measure, and market acceptance are achieved. Apart from the declared price of the cryptocurrency, those invested in it appear to be relying on a perceived “inherent value” of cryptocurrency. This includes the technology and network itself, the integrity of the cryptographic code, and the decentralized network.
Blockchain public ledger technology (which underlies cryptocurrency) has the potential to disrupt a wide variety of transactions, in addition to the traditional payments system. These include stocks, bonds, and other financial assets for which records are stored digitally. There is currently a need for a trusted third party to verify the transaction.
In my view, the cryptocurrency market will develop at a pace set by the key participants, characterized by likely growth spurts of legitimacy from one or more of these participants in what we call “credentialing moments.” For the market to reach the next phase in its evolution toward mainstream acceptance and stable expansion, each of the five key market participants—merchants and consumers, tech developers, investors, financial institutions, and regulators—will play a role.
Tech developers
Many talented tech developers have devoted their efforts to cryptocurrency mining, while others have focused on more entrepreneurial pursuits such as developing exchanges, wallet services, and alternative cryptocurrencies. In our view, the cryptocurrency market has only started to attract talent with the depth, breadth, and market focus needed to take the industry to the next level. However, for the market to gain mainstream acceptance, consumers and corporations will need to see cryptocurrency as a user-friendly solution to their common transactions. Also, the industry will need to develop cybersecurity technology and protocols.
Investors
Investors generally appear to be confident about the opportunities associated with cryptocurrencies and cryptography. The “inherent value” of the underlying technology, discussed above, gives these investors good reason to be optimistic. As a result, only recently have some of the more established cryptocurrency companies attracted institutional investors and Wall Street attention.
Financial institutions
Traditionally, banks have connected those with money to those who need it. But in recent years, this middleman position has been diluted, and disintermediation in the banking sector has evolved rapidly. This has resulted from the rise of Internet banking, increased consumer usage of alternative payment methods like Amazon gift cards, Apple Pay and Google Wallet, and advances in mobile payments.
Regulators
Government attitudes worldwide are inconsistent when it comes to the classification, treatment, and legality of cryptocurrency. Regulations are also evolving at different paces in different regions.
