The Rise of Cryptocurrency: Benefits, Challenges, and Adoption
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The Rise of Cryptocurrency: Benefits, Challenges, and Adoption

October 11, 2022

8 min read

Adam Zakaria

Adam Zakaria

It is out there; it has caught the eye of investors, companies, and entrepreneurs and has won a front seat on our agenda.

Cryptocurrency and blockchain technology introduce a much more flexible financial system to democratize access to capital. Cryptocurrency is a digital, decentralized, and encrypted medium of exchange based on blockchain technology. Blockchain requires no central institutions or authorities, such as banks or governments, to manage the transactions. As a result, blockchain eliminates charges for transactions across borders, reduces bureaucratic interference, and prevents confiscating funds or freezing accounts. 

Initially, blockchain was designed as an underlying technology to support Bitcoin, the apex of cryptocurrencies. Purely virtual, bitcoin is a decentralized database that stores a registry of assets and transactions across “a peer-to-peer network,” a concept that Satoshi Nakamoto first introduced in 2008. Blockchain enables information like ownership, location, history, and other digital assets to be stored in a public and secure blockchain. 

Cryptocurrency offers several advantages compared to the current financial system, including:

  • Decentralization
  • Low transaction fees
  • Faster transaction ​​speeds
  • Irreversibility, 
  • Confidentiality
  • Reliable data protection
  • Inflation-proof assets
  • Simplicity
  • Affordability

Although cryptocurrency will not likely fully replace currency in the short term, it can be a complementary solution. For example, it may be a helpful balancing asset to cash. Because cash isn’t built on blockchain technology, it is more likely to lose value over time due to inflation. Some cryptocurrencies, like bitcoin, have performed exceptionally well over the past five years.

Listing of the market performance of different cryptocurrencies
Cryptocurrency market trends

Cryptocurrency also provides alternatives that are not conceivable with traditional or fiat money. For example, programmable money through smart contracts can increase transparency and enable real-time accurate income sharing.

Today, there are over 20,000 kinds of cryptocurrencies. Bitcoin, the first cryptocurrency created in 2009 after the 2008 Global Financial Crisis, accounts for $408 billion of the market. Ethereum (ETH), the second most popular cryptocurrency created in 2015, accounts for a $207 billion market cap. Meanwhile, Tether (USDT), a stablecoin pegged to the dollar, has a $67.5 billion market cap. 

It’s essential to mention stablecoins like Tether because of their association with the value of a fiat currency, tangible assets such as gold or real estate, or other cryptocurrencies. For example, the stablecoin USDC attaches to the dollar or euro value to improve financial stability. There are also ‘stablecoins’ that are not associated with any other currency but are controlled by algorithms to maintain a stable price, like USDT. The primary motivation for creating a ‘stablecoin’ is to shelter investors in times of volatility.


Institutional Cryptocurrency Adoption

So is cryptocurrency ready for the mainstream? According to a 2020 estimate by fintech loan servicer Fundera, over 2300 US businesses accept Bitcoin – not including bitcoin ATMs. For example, in 2021, movie-theater chain AMC Theaters declared it would accept Bitcoin payment. In addition, fintech businesses like PayPal and Square are placing a bet on crypto by allowing customers to purchase on their platforms using cryptocurrency.


Generational Breakdown of Cryptocurrency Investments

Is cryptocurrency a young man’s game? Research demonstrates that younger decision-makers are particularly interested in cryptocurrencies, primarily in emerging markets. Consumers aged 18 to 24 (Gen Z) invest in cryptocurrencies at a rate of 42%, as opposed to 38% in developed markets. In emerging markets, millennials (ages 25 to 34) indicate investments in cryptocurrencies at a rate of 44% compared to 37% in developed markets.

According to the media organization, “[Y]oung people’s understanding of economic instability has reduced faith in centralized institutions like the government and banking systems. Therefore, these people are willing to try something different like Bitcoin.” 

When it comes to confidence and investing in crypto, older customers are noticeably more cautious. For example, only 21% of baby boomers (ages 57 to 64) intend to invest in cryptocurrencies short-term, and only 18% plan to do so in the future.


Significant Issues to Overcome in Crypto

Although cryptocurrency offers significant benefits to traditional paper currencies, there are still growing pains to overcome. According to Dragonfly Capital’s venture capitalist, Haseeb Qureshi, cryptocurrency must address five issues to improve economic gains, including identity, scalability, privacy, interoperability, and user experience. 

Others include volatility, potential lack of safety, and environmental concerns. The number of machines required to perform cryptocurrency mining has led to claims that Bitcoin may have adverse environmental effects.


Cryptocurrency Mining

Cryptocurrency mining can be conceptualized simply as the method of producing new digital “coins.” But the simplicity ends there. ‘Digging up’ coins requires solving complicated equations, validating cryptocurrency transactions on a blockchain network, and adding the transactions to a distributed ledger.

Unfortunately, it’s easy to manipulate digital platforms, like crypto mines, which require additional security measures. For instance, only verified miners are permitted to update transactions on the Bitcoin ledger, helping to avoid double-spending. Furthermore, since distributed ledgers are decentralized, mining is essential for verifying transactions. Therefore, miners are encouraged to safeguard the network by participating in the validation process and are then rewarded with newly minted coins.

A large room filled with computer servers
Cryptocurrency mining requires significant energy usage to operate and maintain servers.

Environmental Sustainability

Due to its increasing popularity, resulting in high energy consumption, Bitcoin is the subject of most studies looking at the environmental effects of cryptocurrencies. Nevertheless, other coins have environmental implications comparable to Bitcoin. For example, the second-most popular coin in the world, Ethereum, uses as much electricity in one transaction as the typical American household does in just under seven days. Examples of sustainable cryptocurrencies in include Nano, Hedera, Algorand, Cardano, and Chia.

Current forecasts suggest U.S. Bitcoin mining produces 40 billion pounds of carbon emissions. Proof of work mining, the system by which bitcoin mines, needs a lot of computer power, which consumes electricity sufficient to power entire nations. By 2030, the bitcoin sector aims to eliminate all of its carbon emissions.

Renewable energy sources may be required to conduct proof of work mining sustainably in the future. This practice may require moving mining operations out of the U.S. and China towards countries with more alternatives to generate green energy.


Impact of Cryptocurrency on National Currencies

An essential advantage of cryptocurrency is decentralization. Decentralization enables citizens living in countries with currency instability to trade across borders with countries with a stronger currency, avoiding economic blockage by central authorities and prohibiting transferring money that depends on bank approval.

A few nations have adopted cryptos to the point where they have developed some of their own. Consequently, central banks are seriously considering switching to digital currencies, or, as they are known officially, central bank digital currencies (CBDCs).


Action Items to Start Thinking in Crypto Terms

The rising tide of crypto is coming fast and can’t be ignored for long. Although we are undergoing a ‘crypto winter’ or a bear market, experts estimate that by 2030, the crypto market will triple its size, hitting a nearly $5 billion valuation. 

Here are several considerations to better position and protect companies for a crypto future.


Incorporate Digital Cryptocurrencies Into Finance Departments

According to a survey by Deloitte, incorporating digital currencies into the finance department will increase value for organizations. 

Several major players are already involved in cryptocurrency. For example, in 2019, JPMorgan Chase presented its own cryptocurrency JPM Coin, used for funds transfers and faster transaction settlements among clients. Meanwhile, the European Central Bank set up a task force to explore offering a digital euro “because we have to be ready.” 

Additionally, technology firms are looking to exploit cryptocurrencies and other tools to their advantage in the financial services marketplace. A well-known example is The Libra system, a worldwide payment settlement mechanism that aims to reduce volatility and transaction costs.


Use Third-party Payment Processors for Digital Currency Payments

Another pathway to consider is partnering with third-party payment processors to enable digital currency payments, such as Coinbase or MoonPay.

The third-party vendor, acting as an agent for the business, converts cryptocurrency payments into and out of fiat currency. This “hands-off” strategy keeps cryptocurrency off the corporate balance sheet, helping to reduce disruptions to a company’s internal operations.

Most of the technical inquiries are dealt with by the third-party vendor, who will charge a fee for this service. The vendor also manages certain risk, compliance, and control issues on the company’s behalf. However, this does not automatically exonerate the business of all liability for concerns relating to risk, compliance, and internal controls.


Beware of Anti-money Laundering Regulations

Cryptocurrency isn’t safe from money laundering. Some cryptocurrencies, like Bitcoin, do not require client identification and do not regulate the creation of multiple accounts. Because of this, businesses should be cautious of money laundering schemes. Companies and law enforcement agencies still need to pay close attention to matters such as anti-money laundering rules (AML) and KYC (know your customer) procedures.

Because the market is changing so fast, it’s critical to adapt to customer preferences. Integrating cryptocurrency practices can create a competitive advantage as cryptocurrency continues to gain mainstream appeal.


How to Avoid Anti-Money Laundering Fines and Regulatory Scrutiny

  1. Design a unique anti-money laundering (AML)program appropriate to your business model, operations, and risks. For example, business complexity, geographic diversity, range of clients, range of products and services, and the risks they pose that are not addressed by a generic AML program. 

    All these criteria must be considered as a starting point to develop an AML program that is efficient, compliant, and tailored to your company’s operations and requirements. You should also make sure that your AML solution is flexible. A rigid solution runs the risk of making you wait for AML technology providers to make adjustments for you, potentially for months at a time.

  2. Decide on a reliable AML solution. Apply artificial intelligence (A.I.), machine learning (ML), and be data agnostic. Otherwise, your AML program will likely fail if it relies on incomplete or inaccurate data, which can result in expensive fees and adversely impact your business. 

    To avoid this, monitor transactions. Your AML solution should be able to score transactions for credit, debit, ATM, and prepaid cards (and digital wallets) for card-present and card-not-present payments.Also, follow Know Your Customer (KYC) and Customer Due Diligence (CDD) protocols. Your AML solution should have this feature or be able to interface with third-party systems. These practices help guarantee that new accounts, current customers, and beneficiaries are free from money laundering and not on terrorist, criminal, or other watchlists.


  1. Schedule regular internal control reviews and reassessments. Your AML compliance is not a set-it-and-forget-it strategy! For example, after a 2007 merger, a sizable European bank neglected to review its AML systems, resulting in over €200 billion in money laundering and a subsequent criminal investigation by U.S. authorities. As a result, its stock dropped by a third in value. Perform internal control evaluations and regulations reviews regularly – for example, schedule reviews in advance on a quarterly or bi-annual basis.
  2. Document policies and procedures. This practice will give you a prime opportunity to think through each step of your program and thoroughly understand what all the steps are and the resources you’ll need. 
  3. Create an efficient AML team. You must name a compliance officer, specify its responsibilities, provide it with the necessary tools, and assemble a productive AML team. Though it may not be as exciting as a spy novel, this phrase does contribute to the fight against human trafficking, terrorism, drugs, and fraud. 

Why Should Businesses Explore Cryptocurrency?

Let’s welcome cryptocurrency on board. 

First, any business that wants to stay relevant needs to be up-to-date with emerging technologies. Blockchain and cryptocurrencies appear to be here to stay and integrating or experimenting with these technologies positions the company as a competitive and aggressive player in the market.

Second, there is a direct correlation between blockchain adoption and generations. Millennials and Gen Z are early adopters of web 3.0 technology, but forecasts suggest that Gen A will probably fully adopt blockchain technology. Because of this, companies need to familiarize themselves with this new paradigm to develop competitive advantages with younger consumers who will come to expect to pay for goods through web 3.0 applications.

Not only do blockchain technologies, including cryptocurrencies and web 3.0 services, open new market opportunities, but their adoption will be inevitable in the not-so-far-away future.

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