Cryptocurrency emerged from the fringes to become a major disruptor. However, as everyone adopts it, many start pondering whether cryptocurrency will replace the traditional payment mechanism. Those digital currencies pushing for creating a global decentralized financial network include Bitcoin and Ethereum alongside many others. This discussion will explore the possibility that crypto can potentially be a default global payments system or not.
Cryptocurrency is a digital asset that has a block chain technology securing and verifying transactions. The latter will make way for the possibility of peer-to-peer transactions without the use of central authorities, like banks. Since Bitcoin became the first cryptocurrency, many digital currencies emerged. The cryptocurrency relies on cryptography and functions in decentralized networks that will be transparent and with no intermediary.
Traditionally, the basis of the global economy since centuries has been the payments systems run by the authorities like banks and governments. Seldom, it comes with middlemen and so many levels of verification involved, which makes the transaction slower and costlier too. Cryptocurrencies do make direct transactions without involving any middlemen faster and cheaper and borderless as well.
However, volatility and uncertainty in regulation will be a challenge to the current cryptocurrencies that will not be able to compete with more established payments like credit cards and digital banking platforms.
The potential of cryptocurrencies changes global payments through the implementation of several unique advantages over the traditional payment methods of old:
Stablecoins and central bank digital currencies will significantly impact the future of world payments. Stablecoins are tokens pegged to traditionally traded assets, such as US dollars, to ensure price stability and make it a medium of better exchange for transactions on a daily basis. CBDCs might bring all the advantages associated with cryptocurrencies with the fiat trust.
This would bridge the gap between the old finance systems and cryptocurrencies in the sense that they would bestow cryptocurrency with the needed speed and efficiency but, at the same time, tame volatility.
The full extent to which these cryptocurrencies are going to supplant the conventional means of payment soon is far from probable, however. Volatility is a big challenge, as well as the regulatory hurdles and scaling problems. Nevertheless, when technological change catches up with regulatory clarities, these cryptocurrencies are slowly going to take their larger share of global payments and remittances or even cross-border transactions.
Stablecoins and CBDCs are coming as the mainstream payment system between decentralization and stability. Cryptocurrency is going to supplement the existing financial system rather than replace it. It is providing a substitute for those who want decentralised financial solutions.
Full promise and obstacles abound in the way to crypto becoming the new global payment system. Boasting on the one hand with lower fees and faster transactions and more financial inclusion, crypto also boasts of creating barriers in the form of volatility, regulatory uncertainties, and scalability problems. Stablecoins and CBDCs, therefore, may represent an intermediate middle ground that perhaps is more acceptable in the digital payments of the global economy.