As
cryptocurrencies become legal tender, governments will introduce their own
central digital bank currencies. If merchants are unprepared for these changes,
they will be left behind. To stay on top of the crypto-craze, payments
companies and merchants must understand the advantages and disadvantages of
crypto. If they don't, they risk being left behind and risk falling behind
their competitors. In this article, we will discuss the benefits of crypto and
how to make the most of the opportunities it presents to the payment industry.
Bitcoin
Since its conception as a concept that would
revolutionize payments, Bitcoin has become an incredibly popular topic. The
price of Bitcoin has increased to a total value of more than $1.1 trillion, far
higher than the combined market value of all major banks. The rise of Bitcoin
signals the demand for a faster, more secure, and borderless alternative to
current payment infrastructure. In fact, it was the first sign of customers
wanting greater freedom in transactions.
Although cryptocurrency has experienced a rough ride for
investors, it may be destined to become a mainstream payment mechanism. In a
recent McKinsey 2021 survey, respondents reported buying crypto primarily as an
investment, while only 21% said they held it to make purchases. As
cryptocurrency moves beyond the investment phase and becomes more widely
accepted, the technology is expected to become a worldwide payment mechanism
and challenge traditional fiat payment systems. But there are some major
challenges that stand in the way of a widespread adoption of cryptocurrency for
payments.
Other cryptocurrencies
Many observers predict that by the year 2024, 20% of
large enterprises will use cryptocurrencies. This will significantly disrupt
traditional financial networks and business models. Several studies show that
cryptocurrencies can improve the efficiency of payment systems. Stablecoins,
for example, are currencies that are pegged to a fiat currency and can transfer
value more efficiently than legacy payment networks. Among these are bitcoin,
Ethereum, and other cryptocurrencies.
Currently, about 300 million people use cryptocurrencies.
That's roughly 4% of the world's population. However, some players expect the
number to rise dramatically by the end of the decade. For now, however, there
is still much to learn about the technology and the business models of
cryptocurrency. To help understand how the technology works, let's look at some
of the key concepts behind crypto and how it will change the way we pay.
Blockchain technology
Financial institutions are facing a growing problem of
fraud and security, and blockchain-based payment solutions could be the answer.
Currently, a transaction can take anywhere from one to three days to process,
depending on the system and the bank. Banks are also susceptible to hacking,
and blockchain-based solutions eliminate this risk by decentralizing
information and allowing for failsafes to be used when transacting.
As a new type of ledger, blockchain technology offers
secure payment transfer without the need for third-party verification and can
reduce the processing time of traditional bank transfers. 90% of the European
Payments Council believe that blockchain technology will fundamentally change
the payments industry by 2025. Today, trillions of dollars slosh around the
world because of added fees and a sluggish payment system. With this new
technology, payments will be quicker and more efficient than ever before.
Regulatory challenges
The rise of digital assets like Bitcoin and Ethereum,
which facilitate a number of unique functions and uses, poses a range of
regulatory challenges. Among these challenges are issues with financial
stability and the integrity of the financial system, money laundering and
illicit finance, as well as national security, human rights and climate change.
Regulatory agencies should be prepared to address these issues and ensure that
these innovations do not threaten existing institutions.
Whether regulators will address these concerns depends on
the type of cryptocurrencies and the extent to which they are used. The latest
and greatest crypto technologies use tremendous amounts of energy. Eventually,
governments will need to push for more energy-efficient and
environmentally-sound solutions to address these concerns. Until then,
regulatory efforts and innovation will have to be focused on the issues that
affect existing businesses and consumers. However, this isn't an impossible
task.
Transaction time
While it is true that POS systems aren't likely to be
replaced anytime soon, cryptocurrency is becoming a more mainstream payment
method. This is due to two important trends: mobile payments and unified
commerce. Mobile payments allow consumers to pay with their mobile devices and
are made possible by technology such as cloud-based wallets and Near-Field
Communications. POS systems may eventually have to liquidate their
cryptocurrency if they don't keep up with this trend.
While unbacked coins are speculative and will never be backed by a government, they'll still be an important part of payment systems. As such, merchants will be slow to adopt cryptocurrency. This is likely because cryptocurrencies can be highly volatile. Even if they do become popular, however, they're still not backed by any financial institution. Ultimately, this means that they'll probably continue to be a speculative asset class and ultimately die as the latest version of Tulipmania.
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