Is Cryptocurrency Still the Future of Payments?

Since the introduction of Bitcoin in 2009, and as a result of the global recession during that period, cryptocurrency have been a much-discussed topic across technology, finance, and even global policy. The news is dominated by stories of its impact on our lives and businesses.

One of the most recent crypto controversies stems from China’s central bank, the People’s Bank of China (PBoC), with the publication of a memo that criminalises practically all cryptocurrency activity out of concerns about fraud, money laundering, and the facilitation of other criminal activities. This made huge waves, given that China is the highest contributor to the global GDP and the leader of the worldwide tech race. The ban came as a harsh blow, sending share prices plummeting and raising questions about the longevity of this currency form. If China, which has long been an early adopter of technological innovations, does not trust crypto, should we? What does this say about the future for cryptocurrency?

At the other end of the spectrum, we have nations and companies who are embracing these payments and building them into the future of their operations. In September 2021, El Salvador officially made bitcoin a legal tender in the country. Ukraine, Cuba and Panama are some of the most recent countries to announce their intention to introduce legislation to legalise crypto and encourage its use for payments. PayPal, one of the world’s biggest and most widely accepted payment platforms, now allows its UK users to buy, sell, and hold cryptocurrencies via the platform. If you are out shopping, dining, or travelling, then you may be able to pay using these digital currencies. Microsoft, Pavilion Hotels & Resorts, AXA Insurance, Starbucks, Tesla, Amazon, Visa, LOT Polish Airlines, Expedia, and Lush are among some of the biggest brands to allow their customers to use crypto as a form of payment in certain geographies.

It appears we are getting two very different sides of the story as one financial and technological juggernaut derides cryptocurrencies, while numerous others seem to be racing towards it. But will China’s decision shake the faith of other major players, as well as the everyday consumer? Was it all just a fad?

Is Crypto ‘Dead’?

The short answer is absolutely not, and to understand why that is, we need to think about the bigger picture.  Despite the fact that cryptocurrencies emerged over a decade ago, we are still in the early adoption phase. People tend to not trust what they do not yet understand, and we have seen that with just about every technological innovation in history.  That is why we have an innovation curve to begin with.  There are always innovators and early adopters who make the first move, but they usually make up a small portion of the population. Meanwhile, everyone else falls somewhere between a lack of awareness and deep scepticism. Even the introduction of the world wide web – or internet – witnessed this curve. It was officially ‘invented’ in 1986, made available to the public in 1991, and took several years to gradually grow in popularity. Fast forward to today, and we cannot imagine our lives without it. Considering this in relation to cryptocurrency, we are right on pace.

Is Crypto Safe?

The reason China cited for their ban was that cryptocurrencies facilitate criminal activities such as money laundering or fraud. For many naysayers, this ban comes as vindication of the popular critique that crypto is only for hackers, crackers, and criminals.’ For others, this ban has called into question whether or not crypto is safe.

The unique appeal of cryptocurrencies is that they are backed by blockchain technologies that operate via cryptography. This system is considered to be inherently more secure than other forms of encryption used in standard online banking, digital wallets, and other peer-to-peer payment services. These platforms are so secure that many have reported losing their passwords and never being able to get back into their digital wallet, unlike online banking which allows you to reset with a simple email or phone call. Cryptography adds an extra layer of protection by making these virtual currencies nearly impossible to counterfeit or double spend.

Therefore, whether or not investing in cryptocurrency is ‘safe’ depends on your definition of the term. The better word to describe these transactions is ‘secure’ for two main reasons. The first is the volatility of the cryptocurrency market itself. Much like the stock market, the value of cryptocurrency tends to fluctuate. Your bitcoin investment may be worth thousands one week and markedly less the next. We saw this in action after China’s announcement, with the value of bitcoin dropping much like a company’s stock would after a publicised scandal, for example. While many forms of crypto are valued much higher than your average stock would be, they are by no means a ‘safe’ cryptocurrency investment due to their volatility. Traditional currency also fluctuates in value day-to-day thanks to inflation or deflation, but this is not nearly as extreme. The difference is usually pennies, if that. You are very unlikely to make or lose a vast amount of money overnight. For many, that risk is off-putting.

While the blockchain technology that powers crypto transactions does help to make these payments more secure, that does nothing to defend against nefarious intentions. Because it is still early days, the current crypto regulation is insufficient for these payments. Depending on who you talk to, this is either a blessing or a curse. On one hand, crypto payments can be processed faster and with less fees. That is one of the biggest draws for both businesses and individuals. On the other hand, the somewhat ‘Wild West’ nature of the crypto space has made it appealing for cyber criminals. The secure nature of these transactions makes them harder to trace, which is a double-edged sword in some ways. It is a draw for using these transactions, but also does make it easier to misuse this power.

However, it is fair to say that just as with traditional currency, those use cases can be considered the extreme. With traditional currency, we still see instances of fraud, money laundering, and counterfeiting, but only a small percent of the population are using it this way while the rest of us are making purchases, paying bills, dining out, and so on. Just because some forms of nefarious activity is a possibility, that doesn’t mean that that will be the default. The majority of us will use crypto without ill intentions.

Many countries are already taking steps to introduce legislation and appoint regulatory bodies at a national level. The UK has assigned the FCA to oversee it, and recent news from the US hints that the Biden administration will be ramping up their regulatory scrutiny in the coming months. We can also expect to see independent organisations begin to form dedicated to creating governance and ethical standards, as well as some related to crypto’s use in specific industries.

With all that in mind, China’s ban is not as earth shattering as it may seem. As the technology matures and develops, we may even see this overturned. Crypto is therefore not dead, provides a secure option for your virtual transactions, and still has a promising future ahead. But right now, the key is to cut through the noise and trust in the benefits that crypto can bring. Volatility is a regular feature of innovation. Innovations that break the status quo and challenge what we know today tend to ruffle some feathers. That is how you know that something great is on the horizon.

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