Cryptocurrency’s Usability Crisis
Why cryptocurrency’s adoption as a payment system has significantly lagged
Next month marks the 11th anniversary of Bitcoin Pizza Day, the first recorded instance of an item purchased with cryptocurrency. Over the following decade we’ve seen an absolute explosion in both interest and investment into the digital currency space. Despite this, however, we’ve seen comparatively few actual instances of it being used as a day-to-day money. Of course, there are exceptions. I’ve been living unbanked off of crypto since 2016. But the fact that people still disbelieve me when I tell them this is a sign that “peer-to-peer electronic cash system” is still very much more a theoretical concept than a present-day reality.
So why is this? In short, because cryptocurrency as a whole is still facing a usability crisis of sorts. While the cypherpunks have been happy to run their own nodes and deal with the less aesthetic elements of the technology, the average non-technical person has spoken: the tech isn’t yet ready for mass adoption. Here’s some of the top barriers cryptocurrency must overcome before fulfilling its promise of digital cash for the world.
Note: This is NOT about challenges facing cryptocurrency’s usability that are the result of its relatively limited adoption at this juncture, such as relatively few places to spend it and market volatility. This is about technical challenges that have resulted in this relatively low adoption.
Technical Barriers to Adoption
In descending order of importance, here are the most pressing technical challenges that are hampering the mass adoption of cryptocurrencies.
High and unreliable fees
This is the first major byproduct of scaling issues. If you’ve used a Bitcoin or Ethereum transaction lately (surprisingly few have), you’ll have noticed just how expensive it is to make a simple payment. This isn’t a universal experience among all cryptocurrencies, but the two networks that most people want to use, and which together make up over two-thirds of the entire market’s valuation today, are notoriously high-fee. While large institutional funds wouldn’t mind a $20 fee to move around the vast sums of money at their disposal, no average person would for any reasonable-sized purchase.
It’s also not simply a question of the raw cost of a transaction, but also the inconsistency. Depending on the time and circumstances, a payment on the two major networks can fluctuate in price dramatically. This means that a user can expect to pay a certain amount to send money one day, yet be completely blindsided the next day at a radically different amount, based on network activity.
Slow and inconsistent time to finality
Another result of scaling problems, it’s very difficult to estimate when a payment will actually become final, except that it will likely take a while. Again depending on fees and network congestion at the moment, a single blockchain confirmation can take hours or more, and depending on how many confirmations the recipient requires it could take even longer. For customers of the modern financial system used to tapping or swiping a card and seeing their payment go through instantly, this is a serious issue.
Even on networks without congestion this waiting time is still far too long. A Bitcoin Cash transaction will likely receive a confirmation within 10 minutes, and Litecoin will do the same within about 2.5. However, this just isn’t enough for in-person retail payments, or even online ordering.
Managing long and ugly cryptographic addresses
A hallmark of cryptocurrency is the public key, the long cryptographic address that enables the user to receive payments. In all my years onboarding new users to the technology, this is without question the most difficult step. Copying and pasting what essentially amounts to gibberish to the human eye is far from intuitive, is prone to errors, and becomes even more complex for UTXO-based cryptocurrencies like Bitcoin which frequently include a fresh address for each transaction, multiplying the probability of human error.
For in-person transactions the address problem is mostly a non-issue, since payments are typically made by scanning a QR code, a process common in even legacy payments and other mobile tech. For online payments and peer-to-peer transfers, however, the address issue still persists. Even worse is during the process of records-keeping, where an untrained user may have to use a block explorer to verify that a payment took place or to look up a transaction history, and this process is sure to make their eyes cross in confusion. As long as the end user is exposed to raw public keys in order to use this technology, it simply won’t reach mass adoption, except through a central intermediary that obfuscates this from the process.
Challenging and risky self-custody of funds
The dark side of “not your keys, not your crypto” is, of course, “lose your keys, lose your crypto”. One of the most revolutionary aspects of cryptocurrency is the ability to control your own funds without any third party, but as mainstream adoption looms close, the risk that millions of careless new users will lose their money forever becomes increasingly worrying. There needs to be a solution that allows users to control their own funds but also simplifies the process and provides a solution in case access to those funds is lost.
No social component to payments
Another hallmark of cryptocurrency is its pseudononymity, the fact that no one knows for sure who exactly owns which coins or is behind which transactions. This is a very important plank of a truly permissionless system, but it does complicate actually connecting with other users. If someone pays you, barring some major blockchain analytics chops, you have no idea who sent it, and the same goes for sending a payment. All the social information, from basic invoice information to transaction history and other communication, is conducted on other channels.
This poses two main problems: potential for usability and centralization issues. Right now, it’s simply clunky to juggle communication and payment apps to make a simple transaction, with no good unifying coalescence of data. The market demands simplicity and ease of use, which means there will be social payment apps in the future. Without this problem solved at a decentralized level, however, this just means that these will be made on centralized platforms. A user wanting to transact freely without risk of censorship will have to go back to the dark ages of “antisocial” payments, relying on a jury-rigged hodgepodge of communication channels to conduct their business. Few will want to do this, so centralization will win.
Limited financial confidentiality
Believe it or not, the early hype around cryptocurrencies such as Bitcoin was wrong: no, they’re largely not super-secret dark web money, but rather the most radically transparent financial system in history. A little too transparent, even. When you use a bank account, the bank knows about all your transactions, as does every party that gains access to those records. With cryptocurrency, the whole world has the potential to know. Anyone who knows which address you used for a given transaction can see exactly how much you received, if anyone else has paid to that address, and where you moved the money afterwards. For an average person going through block explorers this can be a little tricky, but some basic chain analysis can essentially trace the movements of anyone’s funds. Of course, the trick is first finding out which person is associated with which wallet, but that correlation can also be made.
This is even worse with account-based cryptocurrencies such as Ethereum, which don’t generate a new address with each transaction, but keep a single address per wallet, meaning that anyone who exchanges funds with you can see your entire financial history. Money should be confidential, and no one is going to use a system if they fear all their transactions will become public knowledge, bringing along with it all the associated risks of theft, extortion, and more.
Industry Incomplete or Non-Solutions
All this isn’t to say the problems described above have simply been left completely unattended. Hundreds (if not more) of talented developers the world over have been grinding away for many years, and some have even produced results. The issue is, at present the results simply aren’t going to cut it. Most cryptocurrency usability solutions are either incomplete, not effective, or don’t solve the main issue with little enough trust in third parties to be worth it.
The Lightning network is too experimental and doesn’t solve fees
Highly-touted for years as the solution to all of Bitcoin’s scaling problems and the way forward for regular payments and micropayments, the off-chain Lightning network allows users to make transactions at a high volume for low fees, finalized instantly. The issue is that Lightning, while developed over more than a half-decade so far, is still at a risky and experimental phase, with security and UX issues abounding. In order to make transactions, a user must run a Lightning node which must remain connected to the internet at all times in order to both receive and send transactions. Funds must first be moved off-chain through an on-chain transaction, and payment channels between other nodes must be manually established in order to transact, or they must be routed through other nodes, with the potential of routing failure. Channels must have enough both inbound and outbound liquidity in order to transact correctly, and many times a payment of a significant enough size (even $1,000) may experience routing issues. All in all, it’s a nightmarishly complex experience for a non-technical user.
Now to be fair, if you’re a recent user of Lightning, the above may not describe your experience at all. Many modern Lightning wallets are relatively easy to use, simply requiring an app download and then sending and receive can commence the same as a regular cryptocurrency wallet. It’s important to note a couple of things. First, many of these wallets are custodial, meaning they essentially operate like a bank with the provider taking control over your funds and processing all transactions for you. Second, some second-generation wallets have found a way for users to control their own funds while still providing a relatively good experience. While better than custodial, this still requires trusting central third parties to process transactions, open channels, provide funding liquidity, and so on (Phoenix, probably the best wallet on the market, achieves its great UX by requiring users trust solely their node). We should be able to do better.
And let’s not forget the elephant in the room: you’re still exposed to on-chain transaction fees. Taking funds off-chain requires an on-chain transaction, as does opening payment channels, as well as settling transactions to cold storage or in the case of a dispute or other issue. At a typical transaction fee of over $10 at time of writing, this equates to a hefty sign-up fee at a minimum. Even in second-generation wallets where the provider handles some of these transactions, those fees will invariably end up passed on to the end user. All in all, the Lightning network has the possibility of neatly and completely solving scaling issues with enough trust-minimization someday, but even if it comes, that day is not now on the near horizon.
Payment protocols and trusting 0-conf are insufficient
On the other end of the spectrum from off-chain solutions we have mass on-chain scaling, and trusting unconfirmed transactions (or 0-conf) as safe. This is largely an approach championed by Bitcoin Cash, and relies on both scaling the network to avoid congestion and on removing Replace-By-Fee, which allows Bitcoin transactions to be pushed through with a higher fee if they become stuck. While certainly an improvement, this approach still allows for double-spends (where a transaction is redirected after it is accepted, cheating the recipient) to take place on the network, even if they’re not as easy anymore.
Some other approaches include using payment protocols to allow the merchant to actually broadcast a received transaction and exert more control on how it’s constructed, further lessening the chance of a double-spend. This still isn’t 100% however, and relies on a central third party to essentially make the payment more secure. Relying on 0-conf security and payment protocols is an incomplete solution that still leaves a lot of variability in the level of confidence a user can have that their payments are safe. The average user will never want to have to guess whether their transactions are reliable or not, or how long they may have to wait. It’s an absolute non-starter.
Usernames either aren’t private, are too clunky, or are centralized
Human-readable usernames, while famously conceptualized by Dash in 2015, have seen various implementations on cryptocurrency networks in recent years, from the Foundation for Interwallet Operability (FIO) to ENS and Unstoppable Domains. While an improvement, most of these are relatively rudimentary (ENS and Unstoppable), simply resolving a username to an address, with little extra data attached. FIO is clunky and inconsistent across wallets. Most (if not all) resolve to a single static address, exacerbating privacy issues facing account-based cryptocurrencies by lessening pseudonymity. And none so far elegantly solve social components such as contact lists.
Undeniably, the best user experience on the market right now is HandCash for Bitcoin SV. This works via handles, usernames that generate a new address back-end when used, and employs contact lists and other features to make payments more streamlined and social. The issue here is it’s essentially a centralized service. While users can send and receive to users of other wallets through the federated PayMail protocol, the internal usernames and contact lists, the bulk of what users will be relying on, are centrally-run. HandCash can deny service to any user they choose, and if the company goes defunct, all of its users risk losing the connections they maintain with friends and colleagues. While certainly an improvement over sending cryptocurrency-denominated payments through a bank-like service such as PayPal, it’s still a far cry from proper peer-to-peer digital cash that you grandma can still use.
While I may have just spent this post painting a seemingly grim picture of the cryptocurrency usability situation up until this point, never fear, there are next-generation solutions under development which I will cover in the next post.
