Why Trust Is Vital for Cryptocurrency and Blockchain Adoption

It was without a doubt the rapid rise of bitcoin price that brought cryptocurrency and blockchain technology to people’s attention. Investors, ordinary users, and government regulators wouldn’t have taken a keen interest in them if not for the buzz and the potential for profit. The hype has since dwindled, but there is still enough interest in the technology among investors and startups.

If there’s anything that can bring back interest in crypto, it’s arguably having improved trust in the system. People need to see the benefits of blockchain without the risks that come with it. This means addressing the issue of tokens getting stolen, wallets getting compromised, and exchanges collapsing or getting hacked.

The Business Perspective

As a Ponemon data breach impact study found, hacking incidents and compromised data result in the loss of brand value and reputation. They also negatively impact stock prices at an average decline of 5%. That’s why improving trust is a must in enabling the mainstream adoption of cryptocurrency and blockchain. There are other challenges, but the biggest stumbling blocks are the low confidence of users and institutions in the underlying technology and systems.

From a business perspective, for example, platforms that deal in crypto exchange, crypto custodianship, and online wallets, will need to beef up their own internal security. Even as blockchain transactions are encrypted and transparent, there is a need to guarantee security to ensure that there is no single point of breach or failure. Most successful hacks have not compromised blockchain systems per se, but rather loopholes and vulnerabilities in exchanges, such as internal databases, user passwords, and the like.

For example, wallets or exchanges will need to enforce dependable identity and access management (IAM), know-your-customer protocols, multi-factor authentication, and even asset custodianship to insure its asset holdings are not easily accessible to potential attacks.

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Volatility Is a Given

In terms of bitcoin, price movements over the past year have been less volatile as compared to the extreme swings observed a couple of years ago. Charts depicting historical bitcoin prices may not look too different from those of fiat currencies, but they are actually significantly different in the amounts involved. The high volatility of cryptocurrencies involves changes that can be hundreds of dollars in increases or decreases.

Such volatility has become a hindrance for mainstream adoption, especially with digital assets that are susceptible to speculation. This is where so-called stablecoins will play a part. As a form of long-term investment, such stability will be more beneficial from a regulatory standpoint. Hence, assets whose values are backed by real-world assets like gold, or fiat currency like the US dollar help establish better trust among institutional users, since they will not run the risk of quickly losing their value should a crash occur.

Trust Is the Key

Trust is vital in mainstream adoption because it addresses most of the major barriers. This trust grows as the following conditions are met.

  • People know and understand cryptocurrency well enough. In general, nobody trusts something they don’t know and comprehend. Otherwise, it’s called faith or fanaticism. It’s enough that cryptocurrency users trust the system just because they feel like trusting it. Such trust must stem from knowledge and understanding.
  • People are already well-versed in the use of cryptocurrency. It took time before online banking was patronized by many. The same can be expected in cryptocurrency use as far as usability is concerned. Once users become familiar with how to use cryptocurrency wallets and the mechanics of how transactions work, it will be easier for consumers to use cryptocurrency as part of their mundane activities.
  • Bad news about cryptocurrency are minimized. It’s impossible to completely eradicate the bad press about bitcoin and other alternative digital currencies, especially those involving theft. However, they can be minimized—not by suppressing the negative coverage, but by addressing the causes of the unwanted incidents.
  • Cryptocurrency is no longer associated with criminal activities. With adequate KYC, anti-money laundering, and anti-terrorist financing regulations in place, governments, businesses and users, will have more trust in the ecosystem.

How to Achieve Trust

Perhaps, the more important question running in people’s minds is who should exert the effort to build trust for cryptocurrency? It’s a complicated situation, but there are at least three parties that come to mind: cryptocurrency advocates, early adopters, and governments.

Cryptocurrency advocates can start by helping spread information about the use of digital currencies. They can run information drives to help people realize that using bitcoin and other similar blockchain-backed currencies is not that difficult. It’s not even necessary to explain the mechanisms of blockchain. What’s important is for people to understand and become accustomed to the relatively new concepts such as digital wallets, digital signing, and the safety measures needed. If people become well acquainted with the usage and the means by which theft or loss of cryptocurrencies happen, they become more confident in using their crypto wallets.

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The early adopters, however, have bigger roles to play. These are the institutions, businesses, and individuals that have already started using or facilitating transactions in cryptocurrencies. Their actions generate positive or negative news and developments that shape public perception. Bitcoin exchanges, for example, have to ascertain that their systems are secured and well-defended from attacks to prevent news of thefts and anomalies. Companies that support cryptocurrency payments need to enhance their security and provide better user experiences to create a good impression among current and potential crypto users. Additionally, holders of large amounts of cryptocurrency must be mindful of what they do with their coins as they can easily influence volatility.

In bitcoins, for example, some people hold massive amounts of coins that their actions affect the price of the currency. Referred to as whales, when they do large transactions such as the conversion of billions worth of bitcoins into fiat money, they disrupt the relative stability of the cryptocurrency. Bitcoin prices are sent into a steep drop, frustrating everyone whose holdings suddenly become less valuable in a short span of time.

Lastly, governments can also do something to help nurture trust in cryptocurrencies. This involvement does not have to entail direct regulation. Governments can help by not putting the “illegal” tag on alternative currencies. They can also craft and impose laws to punish defrauders and thieves, but they don’t have to be directly involved in how the supposedly decentralized currency works. The actions of governments, particularly in how they treat bitcoins and other digital money (legal or illegal), have significant impacts on public opinion.

Once governments remove the legal barriers to crypto money, financial institutions including the big banks will be encouraged to offer cryptocurrency services or at least use blockchain to offer new financial solutions. They can offer asset custodianship or insurance services for cryptocurrency holders.

When it comes to taking away the association of cryptocurrencies with criminal activities, most of the relevant actions are on the part of early adopters. For starters, they have to implement KYC, anti-money laundering, and anti-terrorist financing policies for their services instead of doing business in the dark web serving anonymous customers. Anonymity is one of the touted advantages of crypto money, but for mainstream adoption, it may have to be sacrificed.

In Summary

Establishing trust for cryptocurrency is not as simple as it sounds. To attain it, several factors have to be taken into account and actions undertaken. It entails more awareness and familiarity for current and prospective crypto users, better security measures, and the elimination of unflattering news and association with illegal activities. All of which require the combined efforts of advocates, early adopters, interested parties, and even governments.