Cryptocurrencies (or digital currencies) have been around since 2009, but it’s only within the last few years that there has been a boom in the crypto market. Banks around the world are now researching and piloting their own central bank digital currency (CBDC) as a rival response to the rise of investment in cryptocurrency. Some countries —most notably the Bahamas, the first nation to launch its own CBDC known as the Sand Dollar— are ahead of others. But what does this mean for Australia?
In our previous article, we looked at why Australians like to invest in cryptocurrency. In part two, we discuss whether Aussies trust in cryptocurrency and/or central banks. Most importantly, we ask, what does the future of digital currency look like in Australia? Full survey methodology can be found at the end of this article.
CBDC is the virtual form of fiat currency (such as the Australian dollar), which works similarly to cryptocurrency by using digital ledger technology and cryptography. A bank usually provides money in the form of banknotes and coins, but CBDC is an electronic record (or digital token) of payment transactions. Cryptocurrency requires a crypto wallet to store the keys, and CBDC also relies upon a digital wallet that can be downloaded as a mobile phone application.
Coronavirus driving cryptocurrency growth
Despite being around for decades, cryptocurrency has received a lot of interest during the COVID-19 crisis. In 2020, the original cryptocurrency Bitcoin benefited when the global economy shut down as we saw its market value increase by more than 300% that year. In March 2020, Bitcoin was trading at US$5,000 but by December, it had significantly increased to value nearly US$30,000. Fast forward to November 2021, and Bitcoin hit its highest value to date at US$68,000. However, with a track record of ups and downs, it is still volatile.
Capterra’s survey found that a total of 56% of Aussies either currently buy crypto (23%) or haven’t done so yet, but plan to soon (33%). Within these two combined groups, 50% of people said they bought or started planning to buy crypto during the pandemic. 79% of those in the group who currently buy crypto said that they started to do so in the last two years, which also coincides with the timeline of the pandemic.
Those who were interested in crypto during the pandemic said their buying or usage behaviour changed because:
- Their interest grew due to more people buying crypto (39%)
- They had more time to do research (32%)
- Positive projections for specific cryptocurrencies were appealing (19%)
- Interest in crypto grew due to the negative development of interest rates (7%)
Which companies accept cryptocurrency?
Cryptocurrencies are becoming more mainstream as major companies around the world, such as PayPal, Starbucks, and Microsoft, now accept them as payment. Website Cryptomarkets lists every retailer in Australia who accepts Bitcoin —from hotels and shops to cafes— proving that crypto is confidently entering the marketplace for payment services and transactions.
Capterra asked the survey respondents who currently buy or plan to buy crypto, which industries, products, or services they wish to spend their digital currency on. The most popular answer was payment services (34%), which was closely followed by trading platforms (31%).
Do Australians trust cryptocurrencies?
Cryptocurrencies are decentralised and are not backed by governmental authority. This means that without any regulation, assets are at risk of being stolen by cybercriminals. On the contrary, fiat money is protected by central banks and the government, which may feel like a safer option for traders. We asked Aussie consumers how much they trust both banks and cryptocurrency when it comes to doing common financial tasks.
In the five scenarios (national peer-to-peer money transfer, international peer-to-peer money transfer, secure online payments, secure loans, and trading), it seems that people mostly ‘neither trust nor distrust’ in cryptocurrencies across all financial activities.
It may come as no surprise that banks were rated as being the most-trusted all round in each of the five scenarios. Many online bank accounts come with safety features, such as limiting how much money can be withdrawn in a day. Banks also provide a service for customers and generally speaking, offer financial support, which may be why survey respondents trust in them.
Online banking, however, can be subject to phishing scams and requires extra security measures such as passwords, pins, and two-factor authentication as protection from scammers. If money is stolen from an account, banks may reimburse customers, but unfortunately, with cryptocurrencies, traders are highly unlikely to retrieve coins stolen by cybercriminals.
Whilst Bitcoin is starting to be accepted in stores as payment across the country, eCommerce sites in Australia are also adapting to the crypto market. 43% of Australians either ‘strongly trust’ (11%) or ‘somewhat trust’ (32%) in using cryptocurrency for secure online payment. This seems relatively high given that crypto is fairly new to being used for online shopping. It doesn’t quite compare, however, to a total of 73% of Aussies who either ‘strongly trust’ (38%) or ‘somewhat trust’ (35%) in banks for safer online payments.
Cryptocurrency and illegal activities
Capterra’s survey found that 44% of people think that trade with cryptocurrencies should be regulated by the state or another institution. Over half of Aussies (54%) also admitted they were concerned about cryptocurrency being used for illegal activities.
Blockchain data firm Chainalysis released a report at the start of 2021. It highlighted that illicit activity with all cryptocurrency transactions was down to 0.34% in 2020, decreasing from roughly 2% the previous year. The data showed that, overall, cryptocurrency-related crimes significantly dropped; however, ransomware activity was at an all-time high in 2020.
As people began working from home due to the pandemic, they became more vulnerable to ransomware attacks. There is also a correlation between an increase in ransomware attacks and the rise in the use of cryptocurrencies. Even though tokens are stored in a crypto wallet, hackers can infiltrate the wallets if they know the user’s key.
Ransomware is malicious software that locks a person or organisation’s computer and holds it at ransom until a fee is paid to unlock it. Computer security software can help prevent viruses, spyware, and identity theft.
Central bank digital currency vs cryptocurrency
CBDC is a new form of digital money, which is already being implemented in a few countries. Major banks are starting to develop and pilot their own CBDC, which is perhaps in response to the intense interest that cryptocurrencies have received during the global pandemic.
In November 2021, Commonwealth Bank Australia (CBA) announced that it will become the nation’s first bank to enable customers to buy, trade, and sell crypto via their CommBank app. The app is adding new features for customers to pilot, giving them access to up to 10 cryptocurrency assets, including Bitcoin, Ethereum, and Litecoin. CBA says that it aims to ‘provide capability, security, and confidence in a crypto trading platform’. It looks like CBA is potentially bridging the gap between cryptocurrencies and the banking world.
When asked if CBDCs would be a good thing, either personally or to the economy in general, nearly a quarter (28%) of Australians said yes. However, 50% said that they don’t know, which may be a result of consumers not having much knowledge of CBDC as it is a relatively new concept.
Around two-thirds of Australians (66%) have concerns with CBDC. 19% of survey respondents said they had privacy concerns because banks ‘could track my moves directly,’ whilst 17% said it raises authority concerns as the ‘state could control it like fiat currencies’. 30% of people said they had security concerns about the ‘platform being hacked and their money stolen’.
The future of digital currency in Australia
The Reserve Bank of Australia (RBA) is currently testing the use of digital currencies that would make cross-border payments cheaper and quicker. It will also test whether CBDC could bring about improvements for international payments. The project is a sign of the fintech revolution as central banks are having to evaluate the types of money that they issue.
Despite CBA’s plans to trial new cryptocurrency-related features on its app, major banks nationwide are reluctant to embrace it. They have recently faced criticism due to their ‘de-banking’ practices, which have hit fintech firms hard. Reasons for the de-banking of fintech companies in Australia may include anti-money laundering and counter-terrorism financing (AML/CTF) concerns, and anti-competitive behaviour from the big banks.
The people have spoken, however, as we asked survey respondents what would be their ideal currency in the next five years. The majority (37%) said fiat currencies would be their preferred currency, 19% answered crypto, followed by only 14% of people who said CBDC. For now, it seems Australians are happy with the fiat Australian dollar and central banks taking care of their money.
- The pandemic has seen a surge in the increase of digital payments, which has prompted central banks to investigate and pilot their own digital currencies.
- Cryptocurrencies are becoming more mainstream as major companies are starting to accept them as payment —for both in-store and online shopping.
- Digital currency (CBDC or crypto) presents an opportunity for small businesses to be innovative in the global financial system.
- Overall faith in digital currency remains low as Australians would rather trust central banks for financial activities, such as secure online payment and trading.
To collect data for this report, we conducted an online survey in October 2021. Of the total respondents, we were able to identify 1,000 Australian respondents that fit within our criteria:
- Australian resident
- Over 18 years-old
- Are aware of or are familiar with cryptocurrency (respondents said they are at least ‘a bit familiar’ with cryptocurrency and could define what it means by selecting the correct definition from a choice of three)
NOTE: This article is intended to inform our readers about business-related concerns in Australia. It is in no way intended to provide financial advice or to endorse a specific course of action. For advice on your specific situation, consult your accountant or financial consultant.