CIOs are tasked with sorting the wheat of innovation from the chaff – and with so many systems and services to consider, some tech chiefs believe cryptocurrencies are unlikely to be a key part of their digital transformation strategies any time soon.
Take the example of an IT manager I spoke with recently: “We are pushing the boundaries in other areas, such as artificial intelligence, but Bitcoin and other cryptocurrencies are not on our radar. for the moment.”
While the use of certain emerging technologies – such as using the cloud to help people collaborate or using big data to run analytics – can often be linked to a clear business case, the most of cryptocurrencies – the payment for goods and services – is still not as widespread as many observers might have expected when Bitcoin launched in 2009.
Estimates suggest around 15,000 businesses worldwide accept Bitcoin, with approximately 2,300 of these companies operating in the United States. These numbers sound impressive, but it’s also worth bearing in mind that many blue chip companies still don’t accept cryptocurrencies as payment.
For every Microsoft, which lets users pay for services using bitcoin, and leisure, travel, and restaurant companies — such as Starbucks, Pavilion Hotels & Resorts and airBaltic – which are pushing cryptocurrency trials across a range of areas, there are a host of big name brands that are proving slower to take the plunge.
So what is the reason for this hesitation? One issue is the volatility of crypto, which is often attributed to the way these currencies are traded, with their value determined by what market participants are willing to pay.
This volatility makes it difficult for executives to take a hands-on approach to cryptocurrency. Research suggests that CFOs are hesitant to add an asset to the balance sheet that could fluctuate wildly. As much as 84% of financial executives say they believe holding Bitcoin poses a financial risk due to its inherent volatility, according to analyst firm Gartner.
Another explanation for the reluctance of big brands is the wide range of cryptocurrencies. No one can be sure at this time how the future of digital currency will unfold. Although Bitcoin is the most visible digital token, it is by no means the only one: Forrester analyst says there are currently around 7,000 cryptocurrencies.
The short history of the Internet has shown that early success does not guarantee long-term victory. Investment bank UBS warns that just as Netscape and Myspace have finally been replaced, Bitcoin and some of its other popular counterparts could be usurped by better designed versions.
UBS also warns that the value of cryptocurrencies could suddenly drop as the regulatory environment tightens. Last year, China’s central bank announced that all cryptocurrency transactions were illegal, effectively ban digital tokens such as Bitcoin.
While complete anonymity and legal immunity have been central to cryptocurrency development so far, asset manager Amundi suggests G7 regulators are determined to regulate the ecosystem. The firm says that this regulation is likely to lead to an adjustment in the price of currencies such as Bitcoin – and possibly in an abrupt way.
Add to this significant environmental concerns about the enormous energy required to mine the currencies – estimates suggest that global bitcoin mining consumes more electricity per year than the whole of Argentina – and it becomes easier to see why some risk-averse executives might be reluctant to get involved in cryptocurrencies.
So, just over a decade after Bitcoin was first thought of, the crypto – despite the rapid rise in value of many currencies – is still struggling to gain acceptance by businesses. While all sorts of digital currencies could become an important payment mechanism in the future, analyst firm Forrester suggests that the primary use of cryptocurrencies is now speculative investing.
However, it is also important to recognize that cryptocurrency and the blockchain – which is the decentralized and immutable public ledger on which Bitcoin is based – are still in a nascent stage of development. Yes, leaders will face many challenges when introducing this new payment mechanism, but there is also huge momentum behind cryptocurrencies.
For every large organization hesitant to accept and store Bitcoin, there’s another exploring how cryptocurrencies could be the future of money.
UK charity the Royal National Lifeboat Institution (RNLI) started accepting Bitcoin donations over seven years ago. RNLI’s research into future trends at the time suggested that digital currency could have a big impact at some point in the future and the organization wanted to prepare for that eventuality.
Specifically, the charity realized that using Bitcoin could expose the RNLI to new audiences. And this is a key point: while many individuals, institutions and even nation states are hesitant to embrace cryptocurrencies, there are also millions of people around the world who hold, trade and use these digital tokens every days.
It is also important to recognize that the rise of cryptocurrencies goes beyond mere speculation or providing new ways to pay for goods and services. Alongside the development of public currencies, there is a range of private developments undertaken by organizations across all sectors.
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James Wester, director of research at analyst firm IDC, says his organization is now seeing strong interest and investment from businesses, financial institutions, and even governments in areas such as cryptocurrencies, digital assets, and decentralized finance that they previously viewed with some uncertainty.
According to IDC, organizations spent nearly $6.6 billion on blockchain last year, an increase of more than 50% compared to 2020. The analyst claims that blockchain spending will continue to grow strongly until 2024, with an annual growth rate of 48%. The primary use case for blockchain is in cross-border payments, which uses distributed ledger technology to track and trace settlements.
As Amundi’s report suggests, while there are still major challenges ahead, a fully decentralized and disintermediated cryptocurrency system could enable the development of faster global payment systems, cheaper and more inclusive than current systems.
Such developments mean that CIOs and their C-suite counterparts would be wise to explore the potential impact of cryptocurrencies in their own industries. This is something that resonates with Adam Miller, IT group leader at Markerstudy, who says his insurance company is watching crypto and blockchain developments closely.
The company has launched small pilot projects internally. Although they’re not pushing developments further now, Miller says it’s something they’ll certainly continue to monitor — and he says other CIOs should act when they think the time is right.
“If you have a key opportunity, you should definitely have a deeper involvement,” he says. “If this is something that’s likely to impact your industry, you need to understand what’s going on. Whether or not you choose to do something about it now depends on your personal circumstances.”