Limitations and further potential areas of crypto


Limitations and further potential areas of crypto currencies
Cross-border payments are currently the most significant use case for crypto
currencies, due to the reduced transaction time and costs. Also, the Libra project, initiated by Facebook, aims to significantly decrease fees of cross-border
payments by using blockchain technology (see Groß, Herz, Schiller, 2019).
Currently crypto currencies are mostly used for cross-border payments. However, the importance for cross-border payments could in the future be
overtaken by peer-to-peer lending through an even broader market since
peer-to-peer lending helps to solve liquidity problems, 

specifically in
developing countries. Furthermore, the collateralization issue could be solved
partly by community trust as Expert 6 (2018) has mentioned.
Another area of interest for crypto currencies could be internal systems in
large organizations or governments. It would be an promising application
because it would increase the credibility to a level that current tracking
systems cannot provide (Expert 4, 2018; Expert 1, 2018).

 A specific case where Ethereum could be beneficial is the case of smart
contracts, because crypto currencies are necessary to conduct smart
contracts, as an incentive model, so that other people can operate the
blockchains and the underlying infrastructure (Expert 5, 2018). Currently,
the crypto currency Ether is mostly used to pay for these services. Based on
the smart contracts, there are many applications, and for this reason, these
contracts are an essential factor for the future use of crypto currencies (Wood,
One other possible application for smart contracts is the social security
system. Currently, multiple layers of bureaucracy handle payments like
unemployment benefits, to which the society must pay commission fees. With
smart contracts, these bureaucracy costs could be eliminated. The social
benefit payments could be linked to conditions defined in a smart contract
(Expert 6, 2018).
All of these potential areas require low price volatility (Expert 2, 2018;
Darlington, 2014), which is currently not given. In addition, the use of crypto
currency heavily depend on the regulatory framework. A relatively lax regulatory system would increase price volatility and would make it possible

to misuse crypto currencies for illegal transactions, like money laundering.

On the other hand, a too strict regulatory framework would diminish the

advantages of crypto currencies(Expert 7, 2018). 


Overall, crypto currencies can have a considerable impact on developing

countries, by increasing financial inclusion of individuals and companies. In

particular, by reducing the transaction fees and time, cross-border payments

can be improved (Scott, 2016). This is beneficial for remittance payments,

peer-to-peer lending and international trade. The underlying technology also

supports the fight against corruption by having a more transparent tracking

system for the use of funds (Darlington, 2014).

However, all these benefits heavily depend on the mass adoption of crypto

currencies and the fulfillment of all three functions of money, and this is

currently not given because of excessive price volatility. The lack of back-up

and centralization does not support a stable price level (Ammous, 2018). A

stable price level could be reached by stronger regulation and more political

support for crypto currencies. However, crypto currencies can only get

political support, if government or central banks have control over the money

supply(Jaag & Bach, 2015). Nonetheless, this would reduce many benefits

crypto currencies have.

Currently, crypto currencies support the growth process of the developing

countries in very limited ways. The future development heavily depends on

the regulations that will be introduced, the resulting price stability and

adoption of crypto currencies.


Moritz Holtmeier is graduate of the Frankfurt School of Finance & Management. You
can contact him via e-mail ( and via LinkedIn

legal consultations and travel advisor in the States and within UK

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