The simple answer is that crypto is still in the construction phase, and we aren’t fully ready for it. Considering the myriad of hurdles that currently exist, it is amazing that it has achieved a total market cap value of $2.9 trillion dollars. For reference, the total value of the S&P 500 was approximately $40 trillion dollars at the end of 2021. Yes, we’ve dropped during the sell off, but we are looking at an asset class that didn’t exist 13 years ago and has only really begun to take stride in the last 4 years. It is an amazing success story so far, but even with just some quick thinking, I can come up with over a dozen issues that still need to be addressed to truly bring this new wave of money and finance to its real potential.
Exchanges – just like regular currency exchanges where you might trade your native currency (i.e., dollars) for pesos to prepare for a trip to Mexico, crypto has exchanges as well. As of the writing of this blog, there are more than 375 various exchanges you can use for your crypto. On crypto exchanges, you exchange your native currency (i.e., dollars) for whatever crypto currency you’d like to invest in, or purchase to use. Sounds easy enough, but here are the issues:
- One of the most valuable characteristics of crypto is its ability to provide anonymity. Unfortunately, when you set up an account with an exchange, you must completely identify yourself through a verified ID, and then to get money to and from your account, you need to link it to a bank account. This, “know your customer” process is not going to change, but it obviously undermines the anonymity factor.
- Lack of interface uniformity. There is not a universal set up for crypto exchanges and therefore they all have variations in their respective platforms and how to execute on them. This is can be confusing to new users and, in some cases, even seasoned users struggle.
- Security issues. Exchanges are prone to hacks and a simple Google search will bring up plenty of stories referencing them. All exchanges that take fiat money and allow it to be used to purchase crypto are attached to some sort of financial institution via the internet. Anything on the internet has the potential to be hacked.
- Volume Crashes. Even the largest of crypto exchanges suffer service interruptions when volume is extremely high. This can radically slow down transaction times, increase the fees to process them and even shut an exchange down temporarily.
- Bank Strain. Anyone that has read or seen anything about crypto has invariably heard that crypto and banks are like water and oil, they just don’t do well together. The central banking industry sees crypto as an obvious threat to their way of doing business. That being the case, banks are doing whatever they can to hold on to their centralized business model. Part of that process comes in the form of making it difficult for banking customers to use their crypto accounts. Banks will prevent withdrawals from their accounts to crypto accounts by flagging the exchanges in their systems, making customers call and verify that the transaction is not fraudulent and, in some cases, freezing the customer’s account entirely if not outright closing it.
- Exchange Inventory. This is one of the most common misunderstandings in crypto. When you attempt to purchase crypto, you’ll often have a good idea of what the price of that crypto is at the time. You place your order, the purchase is made and when you review your confirmation, you see that you paid a higher price than what you intended. This is usually interpreted that the exchange is ripping you off. The truth is that there is a difference between buying crypto directly from an exchange and buying it from the open market. If you are using a traditional exchange, you are buying your crypto from that exchanges inventory. They aren’t ripping you off, they are marking it up to make money on their original purchase in addition to the fees they charge. If you are looking for a more even playing field and anticipate trading a lot, do yourself a huge favor and learn how to use an exchange that you can put in price specific buy and sell orders.
User Experience – With less than 4% of the world’s population currently holding a personal crypto account, the current knowledge base regarding crypto is very low. Add the need for immediate satisfaction and gratification in today’s world of micro-sized attention spans and you have a lot of folks that get into crypto way before they should. The result is often a bad user experience that ultimately leads the user to becoming disillusioned and disheartened. There is a dire need for real education in crypto.
- Incredible returns. Whether it be Bitcoin going to a million per, coins that will multiply 100 times in value or 1000% and higher APYs, there is no shortage of crazy returns being marketed. Part of the bad user experience comes from people being attracted to this type of offer like moths to the flame. It’s human nature, but it often doesn’t play out the way it is advertised. If it does happen to be legit, it can be very complex to go through all the necessary steps to realize the gain. In crypto, you absolutely must know what you are doing.
- Ease of buying. Crypto is easy to buy. How does that relate to a bad user experience? By being easy to buy, the barrier to entry is extremely low. When the barrier to entry is low, new users won’t take the time to learn all the important aspects of buying and selling crypto, how it is taxed in their country and the necessary steps to secure it once purchased. It is only when they want to sell, or when it gets stolen from them or they send it to a wrong address and lose it that the rest of the information becomes pertinent.
- Gambling. Far too many crypto buyers view crypto as a get rich quick scheme. This is one of the dark marks on crypto. Due to its rapid acceptance and growth, people have heard stories of others who have made incredible returns on relatively small investments. We all have a desire to experience that lottery like euphoria. Crypto may make a few millionaires, but what crypto needs is dedication to bringing it to fruition through educated users that understand the big picture. Taking longshots has a much greater chance of creating bad user experiences than it does millionaires.
Misinformation & Misunderstanding – There are massive amounts of both! The world of crypto is literally drowning in it and when you are first exposed, you don’t know what is true and what isn’t. Here are a few examples:
- Influencers, marketers, spammers, and pumpers. This group has done a great job of generating interest in crypto and onboarding new users. The unfortunate part is that most of them are getting paid to sponsor, support or generally say positive things about crypto. This is a psychological and emotional battle and if you choose to engage in it by following these types of people – know where you stand.
- Whales. These are holders of large amounts of crypto and we are supposed to be in awe of them as they move their funds around within their portfolios. This activity is followed by most of the leading news outlets and reported to the crypto world as often as possible. The problem here is that we are dealing with outright manipulation. Not only do we know that cryptos are manipulated, but because there is no regulation within crypto, nothing can be done about it. Mass adoption will take care of this, but until then, it will continue to happen.
- Scams & Rug Pulls. These are well-known terms in crypto. As of the writing of this blog, there are currently over 17,500 crypto projects in existence. There are obviously way too many to all be needed and usable. Most cryptos will fail. Know that up front. One more time, most cryptos will fail. Many cryptos are designed by nefarious individuals whose only intention is to maximize extracting as much money as they can from others. When anyone can sit down and fabricate a crypto at their computer, the value of due diligence before investing becomes vital.
- Fake News. These are the standby lines that you hear spun from every skeptic that needs a crutch to lean on. Crypto has no intrinsic value; Crypto uses massive amounts of energy; Crypto is primarily used for illegal activity.
These are just a few of the issues that are at the forefront of bringing mass adoption to crypto. Knowing this should help you to understand what you might have to deal with as a new user and to serve as a reminder to seasoned participants in crypto. It is a work in progress, and I fully anticipate that these short-term problems will ultimately be resolved with long term solutions as crypto becomes a normal part of everyday life.