Crypto’s Evolution From a ‘Store Of Value’ to a ‘Medium Of Exchange’
Despite its recent dip, 2021 was a breakthrough year for crypto, with its market capitalization rising by 188% to reach ~$3 trillion in November 2021. Crypto’s profile and growth to date has derived from its utility as a store of value, but we are finally starting to see its potential as a ‘medium of exchange’. In this article, we examine how crypto payments are gaining relevancy in mainstream commerce, illustrate the current payments use cases, and evaluate their growth outlook.
Bitcoin, the first cryptocurrency, was introduced in 2009 as an alternative medium of exchange to fiat-based currencies. This first generation of cryptocurrencies (bitcoin then others) never gained meaningful traction as payment methods due to their high volatility, low transaction processing speeds, and lack of acceptance. Bitcoin was highly successful as a validation of blockchain technology, which subsequently inspired the development of new generations of crypto across a wide range of applications (as shown in figure 1). Today, select cryptocurrencies (e.g., Solano) and next generation crypto innovations such as stablecoins (e.g., Tether, USDC, Dai) and central bank digital currencies (CBDCs) are driving a radical shift in consumer and merchant perceptions and accelerating usage of crypto payments.
FIGURE 1: Evolution of Crypto & Relevance as a Medium of Exchange
Source: Flagship market observations