Could crypto potentially replace fiat currencies? Probably not yet, but certainly it’s possible in the next ten years.
Payments of all types – whether they’re personal, or B2B – have historically involved numerous intermediaries and subjected to seemingly unnecessary friction points. Cross border payments are a perfect example of these apparent inefficiencies – they’re often expensive, laborious and clunky. Remittance of funds can sometimes rely on as many as six parties for each single transaction: the person paying, the payer’s bank, the payer’s bank’s correspondent, the beneficiary bank’s correspondent, the beneficiary bank, and, deep breath, the beneficiary.
What’s more, many banks don’t allow straight-through processing. It’s clear that, given the contrast of other types of internet-based transactions that customers experience, this outmoded complexity and inefficiency in the payments space was ripe for disruption. But what does the future hold? Of course, cash is no longer king. But will crypto take the crown? Will it become as mainstream as using, let’s say, a credit card? Or will other innovations invade the scene, and steal the throne?
Let’s look at the current state of play, to paint a clearer picture. Today, there are more than 2,000 cryptocurrencies in existence, with a market capitalization of more than $200 billion. Despite the hype swirling around Blockchain, and then the so-called ‘trough of disillusionment’ – the waning of interest, as experiments and implementations fail to deliver – it is still the favored child in the global digital family. And while cryptocurrencies are currently often misunderstood – some would even say mistrusted as a form of payment – financial services companies are exploring their potential benefits.
“Originally associated with criminals and techies, cryptocurrencies have entered the public consciousness,” says Blockchain consultant David Copper, from omnichannel payment specialists, Secure Trading . He adds, “Despite huge volatility in the past and talk of Ponzi schemes and bubble fears, cryptocurrencies have survived and appear to be stabilizing. Inevitably the majority of cryptocurrencies will fade into obscurity. But where there is real utility or notional value, there will be those that survive”
Above all, the survival attributes of cryptocurrencies are: decentralization, immutability and security; it’s this trinity that holds such promise for the digital economy. The US Securities and Exchange Commission (SEC) has so far turned down these initiatives, such as approval for a Bitcoin exchange- traded fund (ETF), on grounds of market manipulation and fraud risk. Clearly, it will be a marathon not a sprint in reaching universal adoption – with plenty of governance and regulation hurdles along the way.
And yet, one such hurdle was overcome recently in Malta in November, 2018. It was the first country to officially regulate cryptocurrencies – the world’s first blockchain island , according to experts. Now the cryptocurrency eco-system has an environment that will foster growth and maturity; this can only help overcome any teething problems and increase payment viability. Significantly, it’s as much about regulation as it is about the purchasing process, according to experts.
“With Malta’s adoption of cryptocurrency and blockchain in September 2018, we can be sure to see many developments to come. The laws and forthcoming regulations will enable cryptocurrency companies to be able to operate and provide services within a regulated environment. As a result of these changes, SG is currently investigating many opportunities around cryptocurrency payments, focusing around timely and frictionless conversions to help bring crypto and fiat currencies closer together,” says Ayrton Chalmers, Group Treasury Manager at Secure Trading.
It’s important to highlight that cryptocurrency will not suddenly replace existing payment methods or forms of fiat currency, but there are exciting developments gathering pace – such as ‘Ripple’. These are cross-border transfers with blockchain and are not only proving to be a viable alternative to SWIFT payments, but better ones at that.
Based upon a purpose-built Blockchain variant, ledger speeds have been tested to 50,000 transactions per second (March 2018) which would appear to way surpass the Visa benchmark of 24,000. And, since Ripple payments are designed to be near instant, it would appear to have a positive effect on both credit and liquidity risk. Those in the know say they’ll deliver faster, cheaper and safer transactions.
“The Ripple Foundation is at the forefront of initiatives to bridge the gap between the external infrastructure of financial institutions and the blockchain eco-system. SWIFT has answered with the Global Payments Initiative (GPI), which is designed to address some of the inherent messaging challenges and friction experienced by correspondent banks,” says David Copper. “It remains to be seen if the two technologies will co-exist, Ripple will supplant or whether SWIFT will win through based on trusted messaging expertise, existing market-share and a mature network. We won’t be experiencing SWIFT’s extinction any time soon and all financial parties should surely be the beneficiaries of increased competition and innovation in the space,” he emphasises.
With all this in mind, it may not be crypto’s time just yet. And yet, momentum is building and it looks perfectly poised to shake up the entire payments industry. Its ability to send payments anywhere in the world instantaneously is unprecedented, while recent regulation is a positive step forward. What’s more, it’s increased in value, use and acceptance (public and merchant), demands that it be taken seriously, with a growing part to play in the world of alternative payments, according to Secure Trading’s CEO.
“Cryptocurrencies are a big part of the emerging economy, although as a total percentage they are small. But that will definitely grow. Cash will reduce and the big winners will be the current technology players, such as credit card payment businesses. What we are doing as a payment technology company is expanding choice for businesses, allowing customers to pay in methods they want to pay in, that suits their locality and industry,” according to Daniel Holden.
Could crypto potentially replace fiat currencies? Could it ever become a day-to-day payment system used by the man on the street? Probably not yet, but certainly it’s possible in the next ten years. In the words of Bill Gates, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.” What is certain for now, is that that growing trend for faster, stress-free, secure payments will only become greater, and cryptocurrencies will be centre stage.