The future of payments: Why cryptocurrencies are here to stay (2024)

In the ever-evolving intersection of technology and finance, a digital revolution is underway, powered by the disruptive force of cryptocurrencies. These digital currencies have shattered convention, leaving an indelible mark on the financial markets, worldwide. But beyond their market impact, they represent a profound paradigm shift that challenges the very foundations of traditional finance.

As we navigate this complex landscape, one question persists: Can cryptocurrencies truly reshape the future of finance and payments or are they merely another fleeting trend in the vast sea of technological advancements?

Shattering financial norms
Cryptocurrencies provide a solution to the limitations of traditional financial systems in our increasingly borderless world. Foreign exchange fees, long transfer times, and high transaction costs have long been pain points for businesses and individuals alike. While conventional wire transfers can take up to 5 days to settle, cryptocurrencies like Ethereum, Stellar, and Solana offer transaction times ranging from mere seconds to a few milliseconds. This enhanced speed not only improves business flexibility but also facilitates improved cash flow.

Transaction fees further exacerbate the challenges faced by businesses operating in traditional financial systems.

Consider this scenario: You want to send Rs 1 lakh to your friend in the US. In a traditional financial system, the transaction cost, including fees, could add up to a hefty Rs 10,000. However, cryptocurrency solutions such as Arbitrum and Polygon charge less than $0.10 per transaction, and networks like Solana settle for less than a cent.

This significant difference in transaction fees makes cryptocurrency payments an incredibly attractive alternative to traditional methods, especially for businesses with high revenue volumes or tight profit margins. By adopting cryptocurrency payments, enterprises can eliminate the typical 2-3% transaction fees associated with card payments, saving substantial amounts of money.

Not only do cryptocurrencies offer benefits to businesses, but they also present a boon for global migrants who rely on remittances.

Transforming payments and remittances
A crucial indicator of the growing acceptance of cryptocurrencies is that nearly 1 in 10 Indian adults are now actively participating in the cryptocurrency economy. This increase in participation underscores a significant shift in public sentiment and mirrors the escalating acceptance of digital assets. As the notion of a decentralized currency earns more advocates, we're setting the stage for a more extensive adoption of cryptocurrencies in everyday transactions.

Another significant supporter of cryptocurrencies comes from the towering pillars of the global financial institutions. These historically risk-averse organizations are now beginning to acknowledge cryptocurrencies as a legitimate asset class. This shift significantly enhances the credibility of digital currencies and strengthens their standing in the financial landscape.

Notable businesses like Tesla, Microsoft, PayPal, Starbucks, Overstock, and AT&T have started accepting cryptocurrencies, underscoring their growing influence across diverse sectors. This isn't a fleeting trend; it's a testament to the tangible benefits of digital currencies. Their widespread adoption indicates that cryptocurrencies are here to stay, reinforcing their place in our financial ecosystem.

Challenges Ahead
However, the adoption of cryptocurrency payments and remittances faces three key barriers that must be overcome.

The first is infrastructure, as payment recipients must be able to convert crypto payments into their local currencies and spend them. This requires integrations with commercial banks, which can be a slow and arduous process, given the significant number of banks worldwide. Secondly, education is crucial, as many potential users remain skeptical or uninformed about cryptocurrencies and how to use them effectively.

This is particularly true for consumers among the unbanked population who would benefit the most from crypto payments. Lastly, regulation remains a challenge. While some countries are embracing cryptocurrencies, others have cracked down hard on the sector, leading to uncertainty and caution among potential users.

Despite these hurdles, the adoption of cryptocurrency payments and remittances is well underway. As more and more local vendors begin accepting cryptocurrencies as payment for goods and services, the need for banking and payment partners to integrate becomes irrelevant. Visa and Mastercard have recognized this trend and swiftly embraced blockchain technology to avoid irrelevancy.

The Final Word
As we gaze towards the horizon, it is evident that cryptocurrencies were always destined to bring about a revolution in the world of payments. Their growing integration into our global economy and financial system underscores this vision. Cryptocurrencies are primed to bring about a significant shift in the global payments ecosystem. Their sustained growth and adoption indicate that they are far more than a fleeting trend. They symbolize a transformational force in finance, marking their enduring role in shaping the future of payments.

While we are still in the early stages of blockchain adoption, incremental changes are gradually paving the way for a future where cryptocurrencies become an integral part of global payments and remittances. As the benefits of these digital assets continue to unfold, the world is poised to embrace a new era of financial inclusivity, efficiency, and accessibility.

(The author is CEO of Zoksh Pay)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)