In recent years, the FinTech industry has experienced significant changes. One of which is the emergence of cryptocurrencies, which is slowly becoming a growing influence.
Read on to get our experts take on this latest solution...
When cryptocurrencies were first created in 2012, they were primarily used for illegal online payments, but as time has gone on, currencies like Bitcoin and Etherium have become more popular trading instruments for investors.
As a result of this rise in popularity, in April this year, Coinbase, a platform for purchasing and trading cryptocurrencies, became the first company of its type to go public in the United States. It is a strong indication that crypto is now firmly entrenched in the financial industry — and it's not going away anytime soon.
Furthermore, these currencies are now spreading to the payments industry, where users are highlighting its potential for cross-border transactions, claiming that it does not require a bank account.
Coinbase CEO, Brian Armstrong said: “Trading and speculation were the first major use cases to take off in cryptocurrency. But we’re now seeing cryptocurrency evolve into something much more important.”
Cryptocurrencies and Payments
It is worth mentioning that such changes are not limited to consumer-facing companies. Some B2B cross-border payments firms have also begun to invest in this arena, citing client interest in access to the technology as the reason for doing so.
The UK based company, Equals Group, is one example of a firm that has introduced support for cryptocurrencies in worldwide payments through an agreement with Tap. And, for CEO Ian Strafford-Taylor, introducing cryptocurrency support is not so much about entering a bright new world as it is about adding support for "something exotic".
However, not all payment companies are as enthusiastic. Adyen CEO, Pieter van der Does, told CNBC that the company has no intentions to introduce cryptocurrency payment options. The reason for this is the volatility of cryptocurrencies like bitcoin made them "more of an investment asset than a payment mechanism."
While purchasing and selling cryptos is becoming more common, the chances to spend virtual currencies are restricted owing to their volatility.
However, a rising number of companies across a variety of industries - from technology to aviation - are embracing cryptocurrencies, enabling customers to use them as an official payment method for their purchases.
Despite having a turbulent relationship with Bitcoin, Elon Musk, the pioneering CEO of Tesla, announced earlier this year they would accept Bitcoin payments for vehicle purchases in the US.
Tesla is not the only company to announce that they will accept cryptocurrencies as a payment method. In addition to the US car manufacturer, Starbucks, Amazon, PayPal, and Pavilion Hotels have all announced they will accept cryptocurrencies.
A threat to existing card payment services?
Despite this endorsement by large companies, the ability to grow and compete with companies like Visa, which "handles an average of 150 million transactions per day," or roughly 1,736 transactions per second (TPS), is going to be difficult.
As it currently stands, Bitcoin transaction rates are significantly slower in comparison. The block size is currently fixed at 1MB (1,048,576 bytes — but with SegWit, that size may expand to a theoretical 4MB) and the average transaction size is 380.04 bytes (assuming that each transaction goes from one wallet to additional wallets — thus a batch transaction would count as one transaction).
Even if cryptocurrencies grow exponentially, there will be barriers in the form of legislation and regulations. While several countries, like Japan and the US, have allowed cryptocurrency transactions and exchanges to operate, countries like China have tightened restrictions on their usage. The Chinese government says it's acting now because of concerns around crypto's volatile price, and its potential use for money laundering and illegal dealings, according to Reuters.
Technological advancements and the emergence of new products will continue to shape the financial industries. Businesses that embrace bitcoin technology, whilst also offering traditional payment solutions may find themselves in a win-win situation. We at DNA Payments are keeping a close eye on the growth of crypto and it’s chances of becoming a global payment method in the near future. If you are interested in learning more about this latest payment method, then contact us today.
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