Introduction
Banking systems lost public trust after the financial crisis in 2008. Since then, cryptocurrencies have been created and have gained attention from societies. Cryptocurrency is a decentralised digital currency that has no government control. It is regulated by a peer-to-peer network, a blockchain, which also serves as a secure ledger of transactions. Over 6,000 cryptocurrencies exist; Bitcoin was the first decentralised cryptocurrency invented by Satoshi Nakamoto, pseudonym, in 2008. In his paper, he described it as “a full-fledged version of electronic money, based on peer-to-peer network communication models, allowing to send online payments from one entity to another without the need for transactions to flow through financial institutions” (Nakamoto, 2008).
Scholars proposed many theories to explain the advantages and drawbacks of cryptocurrency investment and adoption. Although the literature covers a wide variety of such theories, this review will focus on the individual perception of cryptocurrency, Bitcoin. This review is a human-centred approach and not about the technology of cryptocurrencies such as blockchain and mining. This review helps examine how cryptocurrencies were accepted or rejected by societies by exploring individual perceptions of Bitcoin.
Definition of cryptocurrency: Bitcoin
In the past few years, cryptocurrency has caught attention globally and has been used as a legal tender and stored as digital assets; However, few people understand what it is and how it works. Definition and the perception towards cryptocurrency changed over time. When the first cryptocurrency, Bitcoin, was introduced by Satoshi Nakamoto, it was accepted as a virtual currency regulated by its inventors and utilised among a specific virtual community (European Central Bank,2012). As people thought the developers controlled bitcoin, European Central Bank described it as a “characteristic of a Ponzi Scheme.” However, as this new technology began to be accepted widely, the definition changed. It refers to a digital representation of value that does not rely on a central bank or public authority but is used by natural or legal persons as a means of exchange. It can be transferred, stored, or traded electronically (European Central Bank, 2014). Investopedia introduces the most common understanding of cryptocurrency; it is a digital currency secured by cryptography based on decentralised technology, blockchain, making it difficult to counterfeit or double-spend. A prominent feature of cryptocurrency is that third parties, banks and government do not control it, avoiding interference or manipulation (Frankenfield, 2019).
While some countries, such as El Salvador use cryptocurrency as legal tender, the International Review Service (2014) treated it as a ‘financial asset’ or ‘property’ since it does not have legal tender statue in the United States. In other words, cryptocurrency is perceived as a “currency” that can be used to purchase goods and is also perceived as an “asset” equal to stocks or real estate.
Social recognition level of cryptocurrency
Before the advent of the virtual currency, Bitcoin, little was known about the concept of cryptocurrency in the world. It was a niche phenomenon, known only to a limited group of interested people (Maciejasz-Świątkiewicz1 et al., 2020, p189). In 2017, Bitcoin started to get noticed since the highest value was recorded at 13,000 USD. People’s interest in cryptocurrency has skyrocketed as Bitcoin was worth over 60,000 USD in February and April 2021 (Statista, 2021).
The ING International Survey Mobil Banking (2018) conducted a survey of the recognition level of cryptocurrency based on 15 countries, including European countries, the USA, and Australia; Research collected data from approximately 1000 people in each country. The result revealed that 66% of Europeans had heard of cryptocurrency; however, knowing it does not mean understanding itself. Furthermore, only 9% owned cryptocurrency, and 25% considered they expected to own some in the future. Half of the respondents had heard of it, but only a few people invested in it in 2018, the year after when Bitcoin hit 13,000 USD. In the survey, 65% said real estate investments were safer than cryptocurrency. This result shows that people are likely to perceive cryptocurrency investment as risky due to the lack of information and understanding of this new type of currency.
Asian countries, Malaysia, the Philippines, and Viet Nam, have a higher rate of recognition level comparing to the respondents from European countries, Australia, and the USA in 2018. In 2019, OECD (2019) conducted a similar survey to the International Survey Mobile Bank (2018) investigating consumer attitudes, behaviours, and experiences in cryptocurrency in Asia: approximately 1000 respondents per country. It revealed that most of the respondents, 80%, were aware of cryptocurrencies in these three countries, yet 30% of respondents held them. Furthermore, 53% of the people said they would like to own cryptocurrencies in the future. Although people’s awareness of cryptocurrency was high, the understanding was still low since only 17% of all respondents stated that they understood it very well. Both surveys, in Europe and Aisa, shows that recognition level of cryptocurrency is high, yet the majority of people rarely know how it functions.
El Salvador has adopted bitcoin as legal tender since September 7th, 2021, becoming the first nation to do it. However, most Salvadorans are showing adverse reactions to the government’s decision to provide every citizen with 30 USD of Bitcoin. Research carried out by Jesuit University (2021 cited in Statista, 2021) found that most of the residents in Central America were skeptical about making Bitcoin their legal tender. It mentions that 2 out of 10 respondents had not heard of the cryptocurrency before: it might lead to a low share of Salvadoran households with internet access. These three surveys indicate that Bitcoin is a brand new technology that is difficult to be understood and requires internet access to utilise.
Experts’ perception of Bitcoin
Bitcoin as a payment method
The future of Bitcoin as a medium of exchange has been the subject of controversy between experts. The Chicago Federal Reserve described the currency as ‘a remarkable conceptual and technical achievement’ and expected to be used by financial institutions or governments (2013 cited in the Guardian, 2013). The advent of Bitcoin may be the sign of a new currency era. Some people living in the mid-90s thought they did not need the web because of having AOL and CompuServe. However, the web dominated the world because of its flexibility and openness. Mike Hearn considers the same could be said to Bitcoin (the Guardian, 2013). David Birch, a consultant of electronic transactions (2013 cited in the Guardian, 2013), claims that we got an issue in matching the nature of the economy to the nature of the money we use. He believes that humankind finds itself on the edge of the same shift that happened 400 years ago.
It is claimed that bitcoin would likely become the new currency being used in daily life in the next generation. However, while some experts may say this, others think the economy performs better without Bitcoin (Salmon, 2013 cited in the Guardian, 2013). When Bitcoin became legal tender in El Salvador in June, some experts alerted that it could lead to instability and unnecessary risk to El Salvador’s fragile economy (Livni and Lopez, 2021). Luther et al. (2014 cited in Papathanasious et al., 2019) state that Bitcoin’s technological innovation allows it to function as a trading medium, but it cannot be utilised as a currency. The volatility of Bitcoin makes its value unstable towards other currencies, which is considered a severe drawback for its acceptance. Harney (2014 cited in Papathanasious et al., 2019) also mentioned that payments in Bitcoin would be accepted in the business world but also would be rejected because of its significant volatility in price. However, he insists that some accept it as a trading system that does not require excessive charges by third parties. Regarding El Salvador’s adoption of Bitcoin, the World Bank and the International Monetary Fund (2021 cited in Livni and Lopez, 2021) raised concerns apart from its price volatility. They argue that adopting Bitcoin as legal tender could leave a country open to the risk of money laundering and illicit financial activities because it was initially designed to thwart government control.
Bitcoin as an asset class
Bitcoin has dramatically increased its value since 2017, causing many people to enter the world of cryptocurrency investments. Gravin Andresen (cited in European Central Bank, 2012) put forward the view that Bitcoin is an experiment; investing in brand-new ideas is always risky. Brière et al. (2015, cited in Papathanasious et al., 2019) investigate the interconnection between Bitcoin and other asset classes, concluding that cryptocurrency investment seems to provide diversification benefits compared to other types of investments. Analysing the Bitcoin account transactions indicates that it is commonly considered an investment rather than a new form of currency. However, European Central Bank (2012) considers that Bitcoin is not intended to be an investment vehicle and is a circulating medium, although some investors try to profit from exchange rate fluctuations.
Conclusion
The understanding of cryptocurrency is different in each field of people. The general public understanding of it is ambiguous. Most of them consider it as ‘difficult technology’ and ‘gambling machine’ which makes them more challenging to enter this field. People who invest in Bitcoin perceive it as a chance of generating wealth. They tend to find excitement in the high volatility of Bitcoin, investing on a weekly or monthly basis. From the perspective of experts, who know in this type of new technology, have different opinions within them. Some perceive it as a new currency that will be used on a daily basis in the future. In contrast, others consider it is difficult to be accepted as legal tender since there were serious drawbacks: volatility and ease of money laundering. From the standpoint of governments in terms of Bitcoin adoption, majority of them tend to perceive it as a threat to their economies. There are still issues of excessive capital flight, lack of transparency, volatility, and other factors making cryptocurrency hard to be accepted as legal tender.
References
Nakamoto, S. 2008. Bitcoin: a Peer-to-Peer Electronic Cash System. [online] bitcoin.org. Available at: https://bitcoin.org/bitcoin.pdf.
European Central Bank, 2012. VIRTUAL CURRENCY SCHEMES, OCTOBER 2012. [online] Available at: https://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf.
Op, E, 2014. EBA OPINION ON “VIRTUAL CURRENCIES” EBA Opinion on “virtual currencies.” [online] Available at: https://www.eba.europa.eu/sites/default/documents/files/documents/10180/657547/81409b94-4222-45d7-ba3b-7deb5863ab57/EBA-Op-2014-08%20Opinion%20on%20Virtual%20Currencies.pdf?retry=1.
Frankenfield, J. 2019. Cryptocurrency. [online] Investopedia. Available at: https://www.investopedia.com/terms/c/cryptocurrency.asp.
Irs.gov. 2014. Frequently Asked Questions on Virtual Currency Transactions | Internal Revenue Service. [online] Available at: https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions.
Papathanasious, S, et al, 2019. Bitcoin as an Alternative Digital Currency. Exploring the Public’s perception vs Experts. [pdf] Available at: Bitcoinasanalternativedigitalcurrency_earlyversion.pdf
