What cryptocurrencies could learn from Visa and Mastercard to reach mass adoption

The history of money is a very old one. Starting back to Sumer civilization, its evolution has been linked to many technological improvements and societal changes. Indeed, prior to digital writings, money took many other shapes. Some we are still using today, like paper notes and metal coins. Some we are not and sound quite original, like clay tablets, shells, teeth and even feathers. But whatever the shape, money always had the same purpose: being a unit of account, a store of value and a medium of exchanges.

When the mysterious “Satoshi Nakamoto” created the Bitcoin and the first blockchain protocol in 2009, he wanted to develop an asset that would rely on cryptography and be used just like money. However, the Bitcoin, and the other cryptocurrencies that emerged in its wake, have never been able to operate as genuine money, because of their extreme volatility. For instance, in 2017 the price of the Bitcoin jumped from 1.000$ to 20.000$, and then went back under 6.000$ in just 6 months, making it hard to be a reliable unit of account and a stable store of value.

Still, cryptocurrencies can play a role of medium of exchanges. With potentially cheaper fees and faster transactions than the traditional solutions, they also have the ability to work without a central authority for preventing frauds and validating operations. From that perspective, financial blockchains are not really competing against traditional currencies like the dollar, the euro or the yen. They are rather threatening payment solutions such as exchange systems, money transfer platforms and of course payment cards. In their attempt of disruption, it could be relevant for the organizations behind those innovative projects to apply the same strategies that make firms like Visa or Mastercard succeed.

First, like every company with a two-sided platform business model, those firms had to convince both actors (say retailers and consumers) to adopt their product. To do so, some banks like Bank of America, the original creator of Visa, simply send plastic cards with a 500$ credit limit to its customers. If banks had some losses at first, they also turned every single customer into an ally, willing to help them convince retailers to adopt their new payment system. Soon, millions of debit and credit cards were in circulation and massively used.

Second, in their early days, payment cards were not user friendly at all. To be sure customers were really able to pay, retailers had to call by phone the banks and make them approve every single transaction. The payment process was particularly painful and it only improved when chips and magnetic stripes were implemented to payment cards. Those incremental innovations strengthen the initial disruption, allowing transactions to be completed in few seconds by simply swiping the cards into payment terminals and voilà !

By creating wallets and distributing for free some usable assets (better known as tokens in the cryptosphere), the developers of cryptocurrencies could gain their first users and promoters. Some of the teams that develop blockchains are already doing it with operations called Airdrops. However, those operations are more dedicated to people that are already initiated to cryptocurrencies and eager to make profits by selling them in the future. To be adopted by the whole population, crypto-based companies should better put blockchain assets in the hands of random people. Assets these people could use straight away for their inherent purpose and not just for pure speculation.

Also, Bitcoin’s blockchain can only handle 3 to 4 transactions per second and Ethereum’s blockchain, the second biggest one, just 20. On the other side, Paypal and Visa can respectively handle 193 and 1.667 transactions per second. Moreover, there are more than 1.900 different cryptocurrencies today and this number never stops growing. While credit cards are working on the same kinds of terminals, most of the blockchain protocols require different solutions to operate. To get the edge on credit cards and money transfer solutions, cryptocurrencies have to extend their scalability and become interoperable between each others.

To conclude, if the potential of disruption of cryptocurrencies is colossal for the financial sector (and also for many other ones like energy, gaming, luxury or supply chain), still, they might never be considered as genuine money. And this is not such a problem. Sometimes innovations are not impacting things the way they were initially thought. As long as they find some valuable use cases, they have a good chance to have a bright future in front of them. The one thing they should do is to give consistent proofs of their performance and utility. And when the path is not clear, many clues can be found in the history of previous innovations.

This article is available in French on Bpifrance Le Hub website.