2022: The year of cryptocurrency?
Cryptocurrencies have long been touted as the next biggest thing in the payment industry. As of now however, that has yet to materialize in an impactful way. Now as we enter into the new year, it is worth revisiting the crypto world to find out whether 2022 will be the year digital currencies firmly cement themselves and enjoy widespread usage.
But that isn’t to say that they have not seen any significant breakthroughs so far.
For today, we’ll be answering two main questions: First, how much closer are we to seeing widespread use of cryptocurrencies in business contexts? And second, is the trajectory of the growth in this context positive?
Current cryptocurrency trends
2021 was a rather big year for the crypto world. Bitcoin, the poster child of the market, reached new highs and engagement in the market increased to new levels. So why is that?
Generally, the use of digital currencies skyrocketed during 2021, along with the blockchain technologies that underpin them – a trend that will continue next year. In fact, the crypto and blockchain sector has attracted nearly $19.4 billion in venture investment globally since 2017, with over 40% of that figure ($8.6 billion) coming in 2021.[1]
In the past year, big players such as PayPal and AMC started accepting digital currencies, while increased institutional adoption of crypto assets by companies like Tesla, as well as broader acceptance among traditional financial institutions is helping to improve legitimacy.
As more merchants both large and small start to accept cryptocurrency as a payment method, we are also seeing a rise in innovation in crypto wallets and their associated infrastructure.
Stablecoins and Central Bank Digital Currencies (CBDC) are also gaining momentum as players seek to hedge against volatility when entering decentralized cryptocurrency transactions.
Meanwhile, Decentralized Finance (DeFi) applications, typically enabled by smart contracts, are fulfilling traditional financial transactions without the need for intermediaries. By extension, there is greater focus on the infrastructure that is required to drive adoption across both consumer and business platforms.
But as 2022 arrived, we have started to see the subject shift onto new topics, namely electricity use, NFTs and the environment.
What to expect in 2022
The market has become more popular with investors looking to diversify their portfolio and find new opportunities, while also making its way further into pop culture. One way this has manifested is with the skyrocketing growth of NFTs – non-fungible tokens.
NFTs refers to tokens that are non-fungible… meaning they do not hold the same value as one another. While $1 is equal to $1, one NFT is not necessarily equal in value to another NFT. The ‘token’ aspect here refers to how it is a product of the blockchain. Essentially, NFTs can represent pretty much anything, though the most prominent example right now is with artwork.
Whether digital drawings, music or iconic screenshots, there has been a surge of interest and engagement with the NFT market. However, this use case has made many people skeptical of the technology and has limited direct application in business contacts, at least thus far. This could change however.
NFTs and the underlying smart contracts that power them offer great potential beyond simple digital images. It offers an effective system of tracking ownership thanks to the inherent immutability of the blockchain while also being decentralized, meaning there is no one point of failure. Whether we will see this progression in 2022 is anyone’s guess, but each a step forward would mark a massive success for the crypto market as a whole.
Crypto as a means of payment
One of the primary uses for cryptocurrency is for facilitating payments. This is what Bitcoin was originally designed for after all. Now there are whole ecosystems enabling payment by crypto, and following the pandemic, the circumstances seem perfect for them to grow.
Inflation has become a big issue in numerous countries worldwide, seeing their fiat currencies lose their value. Could more people turn to cryptocurrencies because of this? There’s a strong kind of anti-establishment rhetoric surrounding the medium, and its place outside the traditional monetary system gives it the unique ability to evade issues like inflation.
This could be the big break cryptocurrencies need to make it into the mainstream… but there is another issue it needs to overcome: the sustainability problem.
The sustainability problem
Here’s some data to put things into perspective: In October 2021, Bitcoin alone was estimated to have used up to 177 TWh per year.[2] A single Bitcoin transaction is suspected to consume 2,264 kWh of energy. In comparison, 100,000 VISA transaction use just 148 kWh. [3]
Of course, Bitcoin isn’t the only cryptocurrency out there, and there actually many dedicated to fixing this problem. But with Bitcoin being the biggest name and taking all the headlines, there needs to be some more PR work by the smaller tokens to make this known.
Sustainability is a big topic right now, especially for businesses. It will be hard for businesses to pursue lower carbon goals while simultaneously utilizing Bitcoin and the other energy intensive cryptocurrencies. They would therefore have to look into the large pool, of altcoins. Though less well-known, this ecosystem has grown to be quite diverse and has huge potential for business applications.
More potential barriers to overcome
Despite this momentum, there are several challenges ahead for the crypto industry – and regulation is perhaps looming largest. As with many disruptive technologies, law making is playing catch up and global conversations around how to make cryptocurrencies more secure for investors and less attractive to malicious actors are still ongoing.
China has taken a strong stance, announcing in September that any crypto-related activity in the country would be illegal. There’s no denying that China is a massive market, but it’s reluctance to getting involved with crypto doesn’t have to be a major roadblock on the uptake of cryptocurrency.
China already has a whole payment ecosystem of its own that is essentially fenced off from that of the rest of the world. Crypto would essentially become an extension of this. The significant number of payments between China and the rest of the world, however, will still continue to be made in fiat currencies and will no doubt slow its widespread use.
Clear regulation will be vital to the success of the crypto industry, and largely welcomed by investors and service providers alike.
But perhaps the biggest hurdle for cryptocurrency remains the same that it always has been: mass adoption. As its usage increases and the many benefits it offers become more apparent, there maybe be a sort of domino effect that will see its use grow exponentially.
Overall, if this increase in acceleration we saw in 2021 continues into the new year, 2022 could well be the year that we see cryptocurrencies further extend the prominence in payment markets.
Answering the big questions
Now we can come back and answer the two questions we posed at the beginning of the article. So, how much closer are we to seeing widespread use of cryptocurrencies in business contexts?
We have seen some progress when it comes to the use of blockchain more generally, whether with Gamestop and their NFT gaming platform, VISA partnering with Nuvei to release crypto debit cards [5], or UATP partnering with BitPay to enable payments in cryptocurrency.[6]
These are all positive signs, as by making the on-ramp to the cryptocurrency world easier will attract more businesses as they see the potential for, say, cheaper and faster cross border payments. But again, questions over regulations, sustainability and volatility still likely scare off any large scale uses by businesses.
And then is the trajectory of the growth in this context positive?
As an investment? That seems to be the biggest draw for new users right now. But for meaningful applications? We are definitely starting to see more and more uptake of blockchain and cryptocurrency technology by businesses – something likely to continue into the new year. But yes, there are some pretty big barriers to overcome on the horizon.
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[1] The Year Ahead: Top Payments Trends To Watch Out For In 2022 - Finance Digest
[2] https://www.statista.com/statistics/881472/worldwide-bitcoin-energy-consumption/
[3] https://www.statista.com/statistics/881541/bitcoin-energy-consumption-transaction-comparison-visa/
[5] https://thepaypers.com/cards/nuvei-partners-with-visa-to-launch-crypto-debit-cards--1253437
[6] https://www.phocuswire.com/uatp-partners-with-bitpay-to-enable-cryptocurrency-payments-for-travel
