Mass Adoption in Crypto: What Is It and What Will It Take?

If in 2009, when Bitcoin entered usage, you had said that it would be an official currency in two countries, that the total value of all crypto would eventually hit three trillion dollars, and that major banks would take the ideas of decentralized finance seriously in a mere 14 years, most people would have laughed at you. And yet, as 2023 begins, here we are.

While crypto and DeFi have been adopted by millions and are increasingly used by major institutions, the benefits they can offer are still limited by the failure to reach “mass adoption” at this point in time. Here, we will consider what mass adoption would look like for crypto and what issues are preventing that from happening.

We will also take a moment to share some thoughts of our own on how mass adoption will affect crypto and how it may change the entire ethos of the sector to move from a critique of institutional finance to an integral part of the larger financial system.

The situation at hand

As 2023 begins, the world of crypto, blockchain, and DeFi reflects on a year of extremes. The market cap for all cryptocurrencies is nearly 1.24 trillion dollars, with some variation in measurement. The total number of crypto users worldwide likely reached three hundred million people, around four percent of the population. Of these users, nearly five million use DeFi, giving that sector a value of fifty-six billion dollars. These values are well below the three trillion dollar market cap for all cryptocurrencies which was the case in November of 2021.

They are also a sign of how far there is to go in terms of mass adoption. For comparison, the number of crypto users worldwide is roughly equal to the number of people who are known to bank at credit unions — which also manage much larger amounts of money than crypto since the decline from the market cap peak in 2021.

Increased adoption of crypto and blockchain technology by major institutions is both occurring and will continue to occur over the next year. Many central banks, including those in Japan and Turkey, are introducing central bank digital currencies. A considerable number of large companies still accept cryptocurrencies as payment and several others are adopting blockchain tech.

However, this is still a ways from where we could be.

What would mass adoption look like?

While an exact definition of what mass adoption is, such as an exact number of users, is not required to discuss it, a general idea of what it looks like is useful. For our purposes, let us define mass adoption as the point where:

• A substantial portion of the population not only holds crypto as Warren Buffett does value investing, while some trade and speculate as hedge fund managers do, but some also use certain cryptocurrencies such as stablecoins for purchases with similar ease to how they currently use money stored in traditional banks.
• A substantial portion of the population uses DeFi and similar systems for their regular financial services with a similar use to how they currently use traditional financial institutions.
• Institutional investors, such as the major banks, routinely provide trading and custody services for digital currencies and financial products.
• Major investment funds, companies, and notable asset managers are all routinely incorporating crypto into their asset sheets.

As mentioned, we are already seeing the beginnings of mass adoption in the form of major institutional interest in crypto. Central banks are looking into digital currencies. Major commercial banks are working crypto into their portfolios or expanding the investments they have already made.

In many ways, mass adoption will be a strange thing for crypto. Crypto was initially supported by a limited number of people advocating for a system that existed in opposition to the values and practices of existing financial institutions. It existed, and continues to exist, with an ethos of decentralization, self-control of assets, and trustless and permissionless operations. Bringing vast numbers of new people into crypto and DeFi spaces will pose a challenge to this ethos, as many of them are used to working with institutions with different values. It is our opinion that mass adoption can be done in a way that retains the ethos of decentralization, but that it must be done carefully.

What will it take to get there?

Somewhat ironically, the most necessary thing for increased adoption will be the restoration of trust in the “trustless” cryptocurrencies. Recent polling suggests that only eight percent of Americans have a positive view of crypto. Earlier polling tells a similar tale. A number of commentators suggest that the key to reestablishing this trust will be regulations. However, exactly how to get to the level of trust needed to bring new consumers into the world of crypto is still a matter of debate.

Beyond the questions of trust and security, there are a number of other issues which limit the adoption of cryptocurrencies. According to a 2021 survey by the National Opinion Research Center at the University of Chicago on why survey subjects don’t invest in cryptocurrencies, sixty-two percent of respondents admitted to simply not understanding it enough. Other points the respondents raised in addition to their lack of understanding included the limited spending opportunities, the intensity of the price swings, and concerns about security.

Turning away from the things the general public are concerned about and towards what those in the industry know, we must add scalability and flexible blockchain interaction to this list.

As ARPA Network discussed in a Twitter thread, not every system in blockchain and crypto is designed to scale. This is a real problem if the goal is to create an ecosystem that can be adopted by a majority of the world’s population. Only some of the existing blockchains are going to be serious candidates for providing services to a massively increased number of people as they have the potential to contentiously improve their performance when new resources are added.

Those more familiar with crypto and blockchain tech are also aware that not every blockchain interacts well, sometimes much at all, with every other chain. Just as only scalable blockchains are serious candidates for facilitating mass adoption, only those that allow users to easily interact with other chains can provide the services needed for millions of new users. If there is not a high level of flexible blockchain interaction, then there will be no mass adoption of crypto- only increased adoption of a number of smaller blockchain services.

Addressing these issues will not be easy, but will be required to make wider adoption a possibility.

The price swings crypto is widely known for have become smaller over the years in percentage terms. While the memory of the onset of the Crypto Winter will endure, the maturing of the market will likely continue the trend of reducing the severity of regular price fluctuations. Another way to help assure price stability and help to restore trust is to make sure that the leading, most widely discussed coins have compelling uses. If this is the case, a meaningful level of demand for them can be all but assured and the price kept within a more limited range than for coins with purely speculative values.

Security is a tricky issue for crypto to tackle. Unlike with more centralized forms of exchange, there is no central authority in crypto to reach out and undo fraudulent transactions. Indeed, such a thing would not only be antithetical to many parts of the crypto ethos, but technically would prove difficult to combine with blockchain tech. This level of risk is simply too high for many people. Getting these individuals to interact with DeFi will be a difficult, but not impossible, task. Security will have to be improved wherever possible to assuage the fears of these people.

A number of technical solutions come to mind. Making self-custody more convenient and safe by offering users the demonstrable, verified ability to secure their private keys (as well as explaining what that means to the casual user) would do a great deal to help reassure many people. For those looking to invest with more centralized crypto institutions, proof of reserves, essential disclosures, lists of held assets, and proof of risk controls can all demonstrate to the casual user that their money is in good hands.

Beyond this, a number of major failures and fraud cases have shaken the faith of the general public in crypto. Recovering from these shocks will take time and a solid track record going forward.

Turning to scalability, those starting new projects are going to have to think about scalability much more than they previously had. We are already seeing a greater focus on the subject in many areas, including from Vitalik Buterin, If ever improving scalability is not given the attention it needs, then the attractiveness of crypto will be limited to those willing to endure high fees, lackluster performance, and other stresses.

The problem of a lack of understanding is a potentially larger one. To those not regularly interacting with them, cryptocurrencies, blockchain technology, and related applications can be quite esoteric. Education is the solution to this. While there is already a wealth of information on what cryptocurrencies are, there remains a need for more material. Importantly, more material concerning how crypto is different from traditional finance, what DeFi can and cannot do, and how this affects the individual user is required.

At the institutional level, the introduction of regulations may be required to cross the threshold. As mentioned in a previous article, questions about how crypto will be regulated in many jurisdictions remain unanswered. It is almost certain that we will see new regulations eventually. Until that time, many potential investors will likely wish to tread lightly. Some actors associated with the crypto industry have spoken in favor of regulation and helped shape the options on the table in the United States. Further collaboration of this kind should be considered.

Mass adoption has been seen as a goal by many people in crypto for some time now. Exactly what that looks like is still up for debate, and the question of if a system designed in opposition to existing financial institutions can reach mass adoption without concessions that fundamentally change its character is unanswered.

However, we can still prepare for mass adoption and take steps to make it more likely and less of a shock when it does arrive. Making sure that new systems have scalability, that they are accessible to those without specialist knowledge of crypto and blockchain, and that they are mobile-friendly and secure. These steps will help the benefits of crypto reach millions of more people while also retaining the values of decentralization, self-control, and trustless interactions with others.

About Bella

Bella Protocol provides a suite of DeFi products for auto-compounding yield and developer tools for building DApps integrating Uniswap AMM. The main product, Bella Flex Savings V2, is a trusted smart mining product that allows users to experience low gas and management fee, auto return, token burn, and considerable yield farming incentives. Flex Savings V2 has been running on Ethereum for over 20 months, with the highest TVL of over $40 million.

Bella’s core team recently completed building a developer tool — Tuner. This programmatic Uniswap V3 simulator allows strategy backtesting on a transaction-to-transaction basis with arbitrary or historical data without the EVM. It runs independently yet completely retains the exact smart-contract behavior of the intricate design and implementation of Uniswap V3. Tuner now has 32 forks and 101 stars on GitHub.

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