Practical Developments

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The current practical developments in the cryptocurrency industry regarding payments are outlined on this page.

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The cryptocurrency industry is not in its infancy anymore and is developing at a very high pace.

By today’s standards,

BTC

is slow, has low throughput, and transactions are too costly. Therefore,

BTC

only ranks 14th out of 25 cryptocurrencies when analyzed for their usage as payment.

In addition, the acceptance of non-volatile stablecoins has increased significantly. Whereas no stablecoins were in the top 20 examined cryptocurrencies of Z. Li et al. (2019), 5 out of the top 20 by market capitalization are stablecoins today. Additionally, the shift from PoW to PoS is in full swing, benefiting cryptocurrencies' ability to fulfill the requirements of a means of payment in terms of costs, speed, and throughput.

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The second most popular cryptocurrency

ETH

is currently transitioning from PoW to PoS (

ETH2

Giudici et al. (2020) mention that a critical development is the emergence of new exchanges where people can access cryptocurrencies. This trend is also observable by the sheer number of exchanges, with

CoinMarketCap

listing over 300.

Cryptocurrency companies also recently began with colossal marketing efforts to boost awareness.

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The

Crypto.com

exchange secured the naming rights for the Los Angeles Arena as part of a $700 million deal in November 2021.

As awareness and accessibility increase, the network effect takes place as more people invest, and in turn, more platforms are willing to sell and accept cryptocurrencies. Even neo-brokers such as Trade Republic or Robinhood, which initially specialized in stocks, now have cryptocurrencies for sale.

The number of

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Accepting Venues

is also rising. Coinmap lists 29202 shops worldwide as of March 02, 2022, which is more than double the 12813 listed venues on January 31, 2018.

There is also an increase in the number of cryptocurrencies and users. The number of cryptocurrencies doubled within the last year (GP Bullhound et al., 2022), while the number of users has increased two-fold within the first half of 2021, according to Statista (2021).

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Since September 2021, El Salvador has been the first country to accept

BTC

as a legal tender.

In turn, knowledge of cryptocurrencies also grows.

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Knowledge

is not only a relevant factor discovered in the academic literature but is also observable in industry practice (Steinmetz et al., 2021). Educating the people is a central marketing part of different ecosystem entities (Steinmetz et al., 2021), which is also evident in the diverse learning opportunities offered by exchanges such as

Coinbase

and

Binance

or websites like

CoinMarketCap

With more attention, new challenges become evident. One of the biggest challenges cryptocurrencies are trying to solve today is scalability. As cryptocurrencies get more attention and users, transactions increase substantially, and some networks reach their capacity limit. This problem results in high transaction costs and low transaction speed, which is happening for the most popular cryptocurrencies,

BTC

and

ETH

Attachment strategies such as the proposed Lightning Network for

BTC

attempt to make the system scalable by processing transactions off-chain (Lange et al., 2021). In contrast,

ETH

is transitioning its underlying consensus mechanism from PoW to PoS (

ETH2

) to address scalability challenges.

Additionally, with this change, ethereum.org (2022a) is also solving the problem of rising energy consumption and extensive mining equipment associated with the PoW mechanism.

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Cryptocurrencies like