I admit I am new to cryptocurrencies. Even so, I have learned a lot in a short period of time and feel I could at least hold a conversation on the subject without my eyes glossing over. That being said, I feel often times when I learn something new in the field, a thousand more questions arise.
Ever since I first started researching cryptocurrencies - as a result of finding out a relative made a decent return by investing early - I discovered the factor that made cryptocurrencies most vulnerable was the potential avalanche in demand, which would result in making the coins virtually useless.
Since then, I have learned to respect the technologies behind most of the coins and the people who work tirelessly developing and promoting them. Despite my newfound respect for the field and its participants, the issue of demand still haunts me. Of course, proponents of cryptos point out that fiat currency operates under the same set of rules. This, with all due respect, is naïve. The fiat currency market is an ocean. The crypto market still a drop. Fiat currency is also supported by tradition, expansive and highly influential governments and they are the currency of choice of nearly all businesses.
Will cryptos play a larger role in the future? We all hope so. But what needs to be done now?
Another obstacle to crypto adoption that is often overlooked is education. Now, I earned an advanced degree in the United States, speak two languages, have taken classes in accounting, business and technology, and have over a decade of experience in market research. I consider myself in the humblest of terms pretty intelligent. When it comes to the academic and professional accomplishments, I would be in the top half of American adults. According to the US Census Bureau, only 9.3% of American adults over 25 have a master’s degree.1
Is this whole article designed to be a humble brag? Nope. Instead, it illustrates a huge potential problem for cryptos in the US.
Despite my academic and professional pedigree, I find buying and selling cryptos confusing and complicated. There are so many currencies to choose from not to mention the plethora of terms and concepts like ICOs, proof of stake vs. proof of work, etc. Then, there is the whole process of even creating wallets, purchasing Bitcoin with fiat, sending that Bitcoin to an exchange for an altcoin….I think you get my point.
Here lies the problem. The strength of cryptocurrencies depends on demand, which will increase coin appreciation and hopefully open up the real possibilities of being practical for transactions one day. But how can demand be created and satisfied if even educated individuals struggle so much with the process?
Let’s imagine the aforementioned statistic regarding formal education is irrelevant. We all know advance degrees don’t predict the level of knowledge or success in all areas nor does the lack of education exclude someone from mastering a concept like cryptocurrencies. So, what are some statistics that could give us an idea of how prepared the general public is for cryptos?
There could be many factors, but let’s consider the following: financial literacy and accounting knowledge, and technological/computer literacy.
When it comes to financial literacy, Americans are unsettlingly unprepared. According to the National Capability Study by the FINRA Foundation, nearly two-thirds of respondents could not calculate the interest on $1,000 at a 20% rate. The survey of 27,564 in 2015 found that a similar number could not pass a basic financial literacy test. The percentage of individuals who could pass the test fell from 42% in 2009 during the financial crisis to 37% in 2015.2
A study by Financial Literacy Around the World, a Standard and Poor’s Rating Services survey, found similarly disturbing results placing the US at 14th place. “When asked five questions about risk diversification, inflation, interest, and compound interest, only 57% of Americans received a passing score.” Sadly, millennials have lower literacy rates than older generations in the US and other developed countries. One exception to this trend is China. Between women and men, women have a lower rate at 30% compared to men at 35%. Not surprisingly, those with more post-secondary schooling scored on average 15% higher.3
What does this mean?
Well, two conclusions can be made? The first is that Americans, overall, lack financial literacy and likely are unprepared for the complexity of cryptocurrencies. Furthermore, cryptos as a mechanism for financial equality may not be achieved if there are significant financial literacy gaps between nations, academic rates and even gender.
So, can Americans make up for the lack of financial literacy with computer skills?
PCS, laptops and smartphones are ubiquitous in the United States. Unfortunately, skill wise Americans are quite up to snuff. According to the International Organisation for Economic Co-operation and Development Group, only 5% of Americans rank as “3” the highest level. The study includes 215,942 across 33 countries during the time period of 2011 to 2015 and looked at individuals aged 16 to 65. Following the top scorers, 26% of Americans ranked at level 2. “Those who ranked in level 2 likely aren’t developers or engineers, but they get by.” This means 69% of the population rated below level 2, and 26% of people weren’t able to turn their computers on.4
While this article doesn’t go into great detail on all the studies done on financial literacy and computer proficiencies, the above statistics point out that financially and computer literate individuals are hard to come by. Even then, the complexities of cryptos will require time and patience. This all at a time when 60% of Americans are have heard of Bitcoin.5
In conclusion, remember that fiat currency with all its faults is considerably easier than cryptocurrencies. They require no devices and are somewhat understandable by the masses. What is the solution? Will regular folks need to hire the services of a broker in the same way brokers are hired to manage mutual funds and other investments? Perhaps. Regardless, while financial and computer literacy lags in the US crypto project developers and investors must start considering how they can best educate a public they hope will one day be buying and selling their products and services.
1 http://thehill.com/homenews/state-watch/326995-census-more-americans-have-college-degrees-than-ever-before
2http://fortune.com/2016/07/12/financial-literacy/
3 https://www.investopedia.com/articles/personal-finance/120115/us-ranks-14th-financial-literacy.asp#ixzz58Gs9rbSC
4 https://lifehacker.com/this-chart-shows-how-computer-literate-most-people-are-1789761598
5 https://news.bitcoin.com/survey-60-of-americans-have-heard-of-bitcoin-5-own/