The world of cryptocurrencies is both new and fast-changing. The focus has been on how their value has performed in comparison to a fiat currency, much like a commodity. Viewed as money by some just because of its name, it’s difficult not to think of cryptocurrencies as a payment service because their entire existence is based on transactions and logs of transactions.
Cryptocurrencies are being used as a method of payment from one person to another person, which is recorded on the blockchain. As a result, the key question is whether cryptocurrencies are, or could be, a viable alternative to existing fiat currency payment systems for any more than a few ad hoc barter trades. Payments infrastructure for crypto businesses are essential to ensure smooth payment mechanisms.
Cryptocurrencies As A Potential Gamechanger
It may be past time for an industry-changing breakthrough that provides significantly simpler, faster, and less expensive solutions. Some think that cryptocurrencies, or perhaps the blockchain that underpins them, might be the foundation for these answers.
Let’s take a look at a few of the hot topics that have been discussed in the media recently: value volatility, transaction frequency, transaction time, transaction cost.
1. Transaction Time
There are two significant transaction time parameters for a bitcoin transaction; the time it takes to process the transaction and the time it takes to be assured that the transaction will not be cancelled. Alternative ways are emerging, such as net payments.
2. Value volatility
The first major disadvantage of cryptocurrencies compared to fiat currency is price volatility. As businesses typically desire to profit from the things they sell, they frequently charge in the very same currency as their costs to reduce risk. They hedge against adverse foreign exchange fluctuations by pricing in a different currency at a cost. If payments were done in cryptocurrency, each transaction would involve a crypto-to-fiat conversion, and hence hedging.
3. Transaction rate
Visa’s credit card payment network can handle 32,000 transactions per second (TPS), whereas Bitcoin, as a first-generation cryptocurrency, can only handle 3 TPS. The parameters that limit its transaction pace include the way a block is added to the blockchain, the quantity of transactions it processes at a time, and the target time to add a block. As blockchain technology advances, new solutions that solve the limitations of Bitcoin are developing.
4. Transaction cost
These services offer faster transaction times, but they often add another layer of infrastructure, bringing the blockchain concept closer to typical fiat currency payment arrangements.
The concept is new, but it is gaining traction quickly, and there seems to be no shortage of funding for its advancement. It’s also worth emphasising that existing payment processing, particularly foreign payment processing, is not a simple, quick, and low-cost process with no risk.
What Kinds of Payments Could Cryptocurrency Help With?
The possibilities for international payments are limitless. The current procedures are time-consuming and costly. There is a widespread use of cryptocurrency-based foreign payments for lawful purposes, but the volume is still limited, which could stymie progress. It’s unclear whether the emergent technological players are driving this transition or whether any of the current players can evolve quickly enough to stay in the game.
There are far more challenges to overcome for high-volume transactions, but the market is enormous. Without a doubt, the technology has enormous potential. Many companies are competing to be the first to create blockchains that are really scalable, secure, interoperable, resilient, and energy efficient. They are likely to be successful, in our opinion.
It’s hard to predict the future of payment systems or the role that cryptocurrencies will play in their evolution with any accuracy. However, we believe that payments are set to undergo a fundamental transformation that has never been seen before. New entrants will supplant several of the existing large firms. Only a few holders may be adaptable enough to survive. As a result, payments will be drastically altered.