Elon Musk’s previous acceptance of Bitcoin delighted the crypto community, the asset rose to fresh all-time highs above $44,000, its reputation as a store of value was reaffirmed. Bitcoin, however, lost 30% of its value after Tesla reversed its decision to accept Bitcoin payments, citing concerns about the company’s energy use. This did nothing but highlight its inherent volatility, fueling those who consider it an unviable medium.
Despite the market fallout, cryptocurrency and blockchain-based platforms are expected to be vital components of the future of digital payments. We have seen the implementation of crypto-friendly challenger banks, increased use of stablecoins, a proliferation of lending, savings, and borrowing options, as well as the emergence of frictionless cross-border solutions.
Traditional Banks Fighting Fires on Multiple Fronts
The banking sector retains a great deal of influence in the payment space. Nevertheless, the old financial systems find themselves competing with ePayment and crypto-native payment systems, as well as advanced global payments network for crypto businesses. Using only a bank account to make payments seems just as out-of-date as making long-distance calls via a fixed landline with the operator soliciting a fee to connect the call.
Innovators from crypto to central banks with Central Bank Digital Currencies (CBDCs) attack banks, all of whom seem to be attempting to completely disintermediate or reduce the role of traditional banks in the payments ecosystem. Leaders in crypto-native businesses aim to leverage a single-integration approach to payments to enhance their capabilities and overall value proposition.
The Growth Of Defi And Open Finance
The DeFi space has been flooded by tens of billions of dollars since early 2020, despite the Ethereum blockchain being severely congested, driving network fees through the roof and pricing many regular users out. Some blockchain-based payment solutions aim to streamline traditional payment processes to make transactions simpler, cheaper, faster and safer, but others are creating neater solutions that aren’t just relevant to the finance industry.
A cashless economy was already well underway by 2020, though admittedly the pandemic accelerated the transition. With the growth of cryptocurrency, digital wallets, challenger banks, stablecoins, CBDCs, DeFi protocols, and other blockchain-based payment platforms, cash is not the only form of payment under attack.
Blockchain On The Global Scale
The Bitcoin blockchain is designed to be unrestricted, and open to everyone. It is possible to operate anonymously since transaction data is publicly available and participants can sign up without prior identification. This draws many capable investors to the platform on a global scale.
Blockchain is a feasible solution to reduce global payment inefficiencies. However, Bitcoin’s implementation is not adequate for professional applications in business. Almost every company and other entity, including financial institutions, must comply with regulations around taxation and bookkeeping.
On the plus side, global transactions can be settled quickly on the blockchain in near real-time.
The move to real-time global commerce can be embraced by all parties in the economy with near-immediate settlement reducing risk.
A blockchain-based method of payment promises cost-effectiveness, almost immediate, transparency, and security. Banking relationships can be reinvented through blockchain technologies. Blockchain can replace correspondent accounts with fiat money to increase transparency and efficiency dramatically.
The blockchain offers the opportunity to resolve inefficiencies and make current systems faster, cheaper, and more secure. Although blockchain is a new technology, the existing rules and requirements for global payments are still in place, and they will not change with the advent of new technology. Ultimately, Blockchain systems will be required to fulfil all of these requirements.