Headline: Too legit to quit: Crypto is going mainstream, whether we like it or not
By Dima Kats, Founder and CEO, Clear Junction
For thousands of years, any financial transaction has been based on a simple barter system – money is exchanged for goods and services. The principle has remained unchanged but the methods – and settlement times – have taken many twists and turns as technology has advanced.
Coins are giving way to contactless payments and QR codes, and with the emergence of real-time payment systems and secure instant settlement, businesses are moving from large-value cheques with T+3 settlement times to instant credit transfers that take place at lightning speed.
But that other real-time payment innovation – crypto, which also offers secure, instant settlement – still incites fear and mistrust. It’s been 15 years since the publication of the Bitcoin White Paper, written by Satoshi Nakamoto, and the precursor to the creation of the first decentralised cryptocurrency, Bitcoin. Today, there are over 9,000 cryptocurrencies in circulation, and an estimated 420 million crypto users worldwide, up from 300 million in 2021.
Many in the industry remain sceptical about crypto as a useful and viable payment method. Crypto’s wild volatility swings and rampant market speculation has led to vast financial losses for many who invested at the height and have seen values plummet since then. But that’s no different to any other high-risk trading bubbles that have popped – tulip mania, anyone? Human greed, rather than the asset being traded, is what’s at fault here.
Much of the apprehension around crypto is not justified and is holding back businesses from achieving their growth ambitions. Whether we like it or not, crypto is here to stay. So, I’m glad to see that crypto’s original purpose as a means of exchange is receiving fresh focus today, as regulators worldwide bestow legitimacy on it with a wave of recently enacted legislations, such as the Financial Services and Markets Bill and ‘Travel Rule’.
With this legitimacy, crypto is becoming increasingly institutionalised, with the likes of Microsoft, Shopify, and PayPal accepting it, while payment networks including Visa and Mastercard are pressing ahead with their own ranges of crypto-geared solutions. We can see the proliferation of crypto wallets integrated with banking apps, crypto debit cards and partnerships with exchanges ramping up worldwide.
The speed with which so many major players, having initially poured scorn on crypto, are doing an about-turn and wholeheartedly embracing it is encouraging. Why the change? Because the benefits, particularly in relation to corporate and cross-border payments, are clear. Blockchain makes it impossible to modify transactions and ensures transactions are traceable, and crypto payments are expected to be more efficient than payments made using conventional instruments like cards.
Of course, some forms of crypto are more equal than others. Central bank digital currencies (CBDCs), with their dual nature as a store of value and means of payment, are as close to fiat without being fiat. With a central government issuing body and fixed value, the obvious use case for a CBDC is as a means of exchange.
At the same time, stablecoins pegged to a reserve asset, such as US dollars or gold can work as a bridge between many cryptocurrencies and fiat currency, reaping the rewards of being a decentralised means of payment without any of the volatility associated with most cryptocurrencies.
Unsurprisingly, the USD Coin (USDC) stablecoin has proved to be an attractive means of storing and trading value within the crypto ecosystem. Just recently, in September 2023, Visa announced it would begin sending USDC to select merchants via the Solana blockchain in a newly announced pilot scheme.
We all want stability in our financial system, so volatile instruments that have no practical use as a medium of exchange fall outside of that. That means Dogecoin is out, but regulated decentralised crypto currencies demonstrate clear advantages, with stability coming from the transparency of blockchain transactions. That’s why we’re now seeing crypto move from the fringes towards the mainstream.
Partnerships between traditional banking institutions and fintechs may well be the key to ensuring crypto can be trusted as a safe and secure payment mechanism. Traditional financial institutions are getting used to the idea of not having to do everything by themselves, as they can source cutting-edge technologies and expertise through specialised fintech partners that can help them navigate through a multitude of challenges, such as compliance, digital offerings and expansion into new markets.
It’s clear that the inevitable growth of the digital asset market will require a roster of fintech and payments companies that can support it as it develops. Clear Junction is one of the few groups to have both a Cryptoasset registration and EMI licence issued by the Financial Conduct Authority, and we have always seen compliance as the cornerstone of our business, ensuring the stability of our business with a solid platform for offering services that fit the purpose of the future of digital assets.
In many ways, crypto’s journey mirrors that of contactless technology – initially greeted with scepticism and mistrust by consumers, but now the favoured way to pay in-store. It may have taken 15 years to get to this point, but it’s not implausible to think that in another 15 years, digital currencies will have replaced fiat in our daily lives – with the next generation looking back and wondering why it took so long.
ENDS
The Payments Association
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27 Clements Lane
London EC4N 7AE
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