KuppingerCole Report
Advisory Note
By Anne Bailey

The Future of Cryptocurrencies

Cryptocurrencies remain a speculative asset, but the launch of Facebook’s Libra could upset the status quo. There are many business opportunities which would stem from widespread adoption of cryptocurrencies, but also many challenges including data protection and tracking criminal activities. The relationship between government regulators, financial institutions, and cryptocurrencies is still being determined. This analysis sheds light on the current landscape of cryptocurrencies, their inherent strengths and weaknesses, and how the impending changes may affect key industries.
By Anne Bailey
aba@kuppingercole.com

Content of Figures

  1. Figure 1 Usability of Major Cryptocurrencies
  2. Figure 2 SWOT Analysis of Cryptocurrencies
  3. Figure 3 Pros and Cons for Cryptocurrency Use in Business
  4. Figure 4 Global Bans on Cryptocurrencies
  5. Figure 5 Regulatory Framework for Cryptocurrencies
  6. Figure 6 Cryptocurrency Interface with the Real Economy
  7. Figure 7 Digital Payments in China

1 Executive Summary

Cryptocurrencies are a decentralized alternative to fiat currencies and have the potential to disrupt the current financial infrastructure. Cryptocurr ...

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2 Highlights

  • Unless critical weaknesses are addressed, cryptocurrencies are unlikely to see widespread adoption
  • The strengths of cryptocurrencies come from its ...
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3 Usability of Cryptocurrencies

First-generation cryptocurrencies depend on blockchain structures that make them incompatible with current AML and KYC regulations. A similar paradox ...

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3.1 Decentralized Management

Cryptocurrencies are built using blockchain technology. A major feature of blockchains is that they can operate without any centralized authority. Thi ...

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3.2 Privacy

This refers to the level of anonymity that users have while trading a cryptocurrency. Nodes may be completely anonymous, pseudonymous, or identified. ...

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3.3 Access Control

Access control refers to the range of actions that a participating node is allowed to take. Once a new node has joined (or been permitted to join) the ...

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3.4 Interoperability/Convertibility

Interoperability refers to how easily the cryptocurrency in question can interact with other cryptocurrency exchanges, wallets, software solutions, an ...

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3.5 Price Stability

Price stability is an assessment of the volatility of the value of a particular cryptocurrency. Most cryptocurrencies experience a high level of volat ...

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4 Strengths and Weaknesses of Cryptocurrencies

Cryptocurrencies may not seem relevant to your current business transactions. However, as early as 2020 the scope and influence of cryptocurrencies ma ...

Figure 2: SWOT Analysis of Cryptocurrencies

The internal strengths of cryptocurrencies come from their use of blockchain technology. The automated, decentralized, immutable ledger bring many ben ...

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4.1 Cryptocurrency Internal Strengths

A main value proposition of blockchain-supported cryptocurrencies is to eliminate third parties and their associated costs. Current methods of conduct ...

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4.2 Cryptocurrency Internal Weaknesses

Cryptocurrencies do not demonstrate the defining characteristics of money. Money holds an essential place in society as a means of exchange, a store o ...

Widespread adoption of cryptocurrencies will require high convenience and usability. Thanks to Apple, a high-quality user experience is now a minimum ...

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4.3 Cryptocurrency External Opportunities

Cryptocurrencies could find a synergy with the growing gig economy. A gig worker, which has startling similarities to an informal sector worker, recei ...

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4.4 Cryptocurrency External Threats

Cryptocurrencies that are supported by public, permissionless, and pseudo-anonymous blockchains allow transactions to be tracked with very high transp ...

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5 Regulatory Notes

The standards and regulations concerning cryptocurrency are still under development. Although many different international policy institutions have pr ...

Of the countries that have not expressly forbidden cryptocurrency trade, there are two main categories of regulation that have been used to control it ...

The Financial Action Task Force (FATF) determined that convertible virtual currencies, and especially exchanges which facilitate the trade of virtual ...

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6 Impact on Payment Services

The payment services industry is a mix of legacy actors and new entrants, all with a different relationship to cryptocurrencies. Credit card companies ...

Payment service companies attempt to provide this flexibility in different ways. The legacy payment service Visa relies on a Bitcoin-specific physical ...

Implications and Reactions

The implications for the payment services industry is that many companies are changing their value proposition in order t ...

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7 Impact on the Financial Industry

The financial industry has largely dismissed cryptocurrencies as being a risky, speculative investment without viability as a means of exchange. While ...

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8 Potential Global Adoption

The upcoming launch of Facebook’s Libra is likely to significantly change the cryptocurrency landscape. Its low volatility, potentially wide userbas ...

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9 Recommendations and Conclusion

As long as cryptocurrencies remain a speculative investment asset, there will be no large impact for financial institutions. Mainstream cryptocurrenci ...

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10 Related Research

Leadership Brief: Blockchain ID & Self Sovereign Identity – 80105
Advisory Note: Demystifying the Blockchain – 80301
Leadership Compass: Cloud Access Security Brokers - 70614
Advisory Note: Big Data Security, Governance, Stewardship - 72565
Buyer’s Guide: Hybrid Cloud Services - 72562

Endnotes

  1. http://www.europarl.europa.eu/cmsdata/150761/TAX3%20Study%20on%20cryptocurrencies%20and%20blockchain.pdf
  2. https://www.tradingview.com/markets/cryptocurrencies/global-charts/
  3. https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=15&cad=rja&uact=8&ved=2ahUKEwiC6amnwqXkAhXQ3KQKHeNjBukQFjAOegQICRAC&url=https%3A%2F%2Fwww.aeaweb.org%2Fconference%2F2019%2Fpreliminary%2Fpaper%2F4r9TeS37&usg=AOvVaw1ggy_Qa8uA5fsTKgYNMazr
  4. https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_627189/lang--en/index.htm
  5. http://www.europarl.europa.eu/cmsdata/150761/TAX3%20Study%20on%20cryptocurrencies%20and%20blockchain.pdf
  6. https://www.eublockchainforum.eu/sites/default/files/reports/20181016_report_gdpr.pdf?width=1024&height=800&iframe=true
  7. https://www.loc.gov/law/help/cryptocurrency/cryptocurrency-world-survey.pdf
  8. https://www.americanbanker.com/news/why-chinas-mobile-payments-revolution-matters-for-us-bankers
  9. https://www.bankofamerica.com/online-banking/service-agreement.go
  10. https://www.jpmorgan.com/country/US/en/detail/1320574082929
  11. https://ciphertrace.com/q2-2019-cryptocurrency-anti-money-laundering-report/
  12. https://www.banking.senate.gov/imo/media/doc/Marcus%20Testimony%207-16-19.pdf
  13. https://www.project-syndicate.org/commentary/facebook-libra-inflation-control-problem-by-kaushik-basu-2019-06

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©2020 KuppingerCole Analysts AG all rights reserved. Reproduction and distribution of this publication in any form is forbidden unless prior written permission. All conclusions, recommendations and predictions in this document represent KuppingerCole´s initial view. Through gathering more information and performing deep analysis, positions presented in this document will be subject to refinements or even major changes. KuppingerCole disclaim all warranties as to the completeness, accuracy and/or adequacy of this information. Even if KuppingerCole research documents may discuss legal issues related to information security and technology, KuppingerCole do not provide any legal services or advice and its publications shall not be used as such. KuppingerCole shall have no liability for errors or inadequacies in the information contained in this document. Any opinion expressed may be subject to change without notice. All product and company names are trademarksTM or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

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