Our financial services and products are being reshaped by technological breakthroughs and innovations. Payment services, in particular, have changed dramatically in recent years as new payment methods, platforms, interfaces, and assets have been introduced. The truth is, countries have been working hard to make domestic payments as cheap as possible and as fast as possible. However, the problems in existing payment systems persist.
Cross-border payments are still slow, given the growing number of immigrant expatriates, the exorbitant fees for cross-border payments might be the end-all of traditional payment systems. The global remittance market is valued at more than $680 billion and is expected to exceed $1 trillion in a few years; nevertheless, the system is still expensive, slow, and opaque. Furthermore, approximately 2 billion individuals worldwide are still unbanked or underserved in terms of financial services. People can’t get a bank account because of the discriminatory process used by the centralized entities.
It was for this reason that cryptocurrencies were created, to seamlessly bank the unbanked. While crypto solutions have the potential to solve a wide range of problems, the major initiatives have scalability, interoperability, and sustainability challenges.
Furthermore, cryptocurrency prices are subject to some of the most volatile and speculative price volatility. A single tweet by a celebrity, government regulation, or a move by an institutional player could cause a crypto asset’s price to fluctuate dramatically.
There’s no disputing that blockchain technology has the potential to have a significant effect on almost every sector. Blockchain technology promises to develop new and improved payment systems that are impermeable to dangers such as malicious users, are easy to use, transparent, decentralized, rapid, and put crypto assets at the core of each of its systems, among a variety of other emerging use-cases.
We must remember that the Cryptocurrency sector is still in its infancy. It’s nascency simply indicates that it has a lot of room for development. Interoperability, scalability, sustainability, and volatility are all issues that have been brought to the attention of this industry. Platforms, projects, developers, and members of the community are all working tirelessly to find solutions to these issues.
Thankfully, there may be a solution to all of these thanks to innovations brought forth by stablecoins.
What do Stablecoins solve?
Cryptocurrencies are infamous for their high volatility. You could be a millionaire one day and lose everything the next. The asset is regulated because there is a very good reason for it.
One could argue that the volatility of cryptocurrencies is the reason for their lack of widespread adoption. Cryptocurrencies are not yet widely used as a sole means of payment for goods and services.
Surprisingly, the underlying technology, Blockchain, isn’t susceptible to price fluctuations. It is the primary feature that determines the value of Cryptocurrencies. Blockchain technology’s decentralization, immutability, and characteristics have resulted in the creation of over 11,000 different cryptocurrencies today. Because one of the most significant impediments to bitcoin adoption is its notorious volatility, the cryptocurrency ecosystem devised a solution in the form of Stablecoins.
Stablecoins, unlike Cryptocurrencies, have a fixed value. Stablecoins are digital assets that are backed by a physical item. This asset could range from precious metals like gold and silver to fiat currencies like the US Dollar and the European Euro.
Because stablecoins are cryptocurrencies with a fixed value, they changed the game for the crypto business. Stable coins, like cryptocurrencies, are built on blockchain technology; they enjoy many of the same benefits of blockchain technology, including transparency, security, privacy, and accessibility, but without the volatility that comes with virtually every other cryptocurrency.
Finally, you can buy your morning coffee with cryptocurrencies thanks to stablecoins. Over the years, hotels, restaurants, and other companies around the world have also started accepting cryptocurrencies as a form of payment for their services thanks to stablecoins.
We can finally utilize cryptocurrencies just as they were originally intended thanks to stablecoins. Using stablecoins, we can finally witness the digitization of our money and we can’t be any more lucky.
Restaurant Brands International and Yum Brands, two of the world’s largest food corporations, have begun taking bitcoin payments at a number of locations across the globe. Moreover, Large IT firms, including Microsoft, Paypal, and Amazon, have also started accepting cryptocurrency payments.
Interestingly, international economies such as El Salvador are leading the narrative by coronating Bitcoin as their legal tender. Additionally, Paraguay, Panama, Brazil, and other Latin Countries quickly followed suit by adopting policies that benefit those in financial need by adopting stablecoin.
With more firms, organizations, and foreign economies incorporating cryptocurrencies into their business models, we may soon see cryptocurrencies replacing fiat currencies in international commerce. With the launch of DeFi products like Crypto ETFs, Tokenized Stocks, and NFTs, as well as the rise of the DeFi industry, we might be on our way to a future when the asset will improve our lives.
Stablecoins and the E-commerce Industry
To address the problem of cryptocurrency price volatility, stablecoins have taken a variety of tactics. Cryptocurrency enthusiasts frequently emphasize the potential of cryptocurrencies to improve the efficiency and reach of e-commerce.
While the current financial system is clearly functioning, it is not without flaws, such as its reliance on middlemen, which typically results in credit card companies charging up to 3% on every transaction. Unlike traditional systems, Blockchain Payments can be made directly between buyers and sellers using blockchain technology, bypassing the conventional system and lowering costs for both businesses and consumers.
Blockchain also enables for the automation of the transaction verification process, which most institutions still do manually today, wasting a lot of time and money. According to Santander InnoVentures, “blockchain technology might lower banks’ infrastructural expenses by $15-20 billion per year by 2022.” These benefits will result in quicker settlement times and lower international transaction costs.
Stablecoins’ better efficiency is expected to transfer into a larger reach, as seen by Square’s stunning success in recruiting small firms with cheaper costs. With lower costs, merchants are more inclined to list their goods on the internet since it’s more profitable for them.
Customers may also choose to store their balances in digital currencies and conduct more transactions online without ever needing to use fiat currency or a credit card account. Lower costs and fewer hurdles to entry might be transformative for the 25% of Americans who are unbanked or underbanked, according to the FDIC.
Finally, millennials’ general distrust of financial intermediaries, which has led them to choose FinTechs and challenger banks to established banks, suggests they’d be willing crypto adopters.
These capabilities could be the differentiator that propels stablecoins into the mainstream of finance. We may use data from several companies who have undergone exponential development since their introduction, rising at astonishing rates month after month, to determine the effects they may have on the e-commerce industry.
Stablecoins are utilized for online transactions, ranging from groceries to hotel bookings, for a significant number of users. Merchants have been the first to push stablecoins over alternative payment options, such as credit cards, because of the ease of onboarding and reduced fees, promoting its rapid adoption. The growth of stablecoins has been fueled by a considerable drop in the use of alternative payment systems, such as credit cards. As a result, you may get a sense of what E-commerce 2.0 could look like in the Western world.
Stablecoins, on the other hand, need corporate supporters as well as innovative outsiders to become popular, and they’re starting to win over important insiders. Financial institutions such as JP Morgan and others have recognized the need for a digital currency for payment purposes. Square, founded by Jack Dorsey, just received a patent for a network that allows customers to pay with cryptocurrencies while merchants receive the full value in US dollars, removing any concerns about cryptocurrency volatility. Finally, the entire financial environment is changing — for example, challenger banks like Revolut are accepting cryptocurrencies — making future advances and integration more possible.
The likely future
Regardless of the incentives in place, there are still significant obstacles for blockchain currencies to overcome. The usage of bitcoin to pay for products and services is limited in most parts of the world. Some prominent stores, such as Starbucks and Overstock.com, accept cryptocurrency payments; however, they are outliers.
In the first four months of 2019, Chainalysis, a blockchain research firm, discovered that only 1.3 % of cryptocurrency transactions globally were related with merchant transactions, implying that bitcoin’s major usage is still speculation.
This may change as a result of regulation. Banks have been hesitant to participate in cryptocurrency initiatives due to the risk of being scrutinized by dubious regulators, making most businesses wary of the technology and slowing adoption.
Policymakers are concerned about the transfer of monetary policy control from sovereigns to commercial firms. Central banks’ power to manipulate the money supply is a key aspect of their policy toolkit, allowing them to control growth and inflation when necessary. Moreover, The security of personal information is likewise a big concern. After Facebook’s well-documented data security and privacy scandals, this is a particularly pressing issue, and it will be a major priority of any future stablecoin.
Interestingly, three of the four parts required for a stablecoin-driven e-commerce transformation are currently in place: adequate technology, customer demand, and business supporters. If a favourable legal climate emerges in the next few years, the use of stablecoins as a form of payment might drive blockchain adoption beyond its current niche applications, perhaps breaking down barriers of entry in the e-commerce industry.
If significant financial institutions such as the Federal Reserve give its approval, we may see a reduction in our dependency on fiat currency and actual paper money in our daily lives. Why do we need to swap digital currency for paper money when more of our transactions are made online and cashless shops grow more popular? Amazon and other large shops may introduce their own digital currency.
What do you think? Will we miss paper money after Stablecoins take over?