Updated: Aug 19, 2022
A growing number of businesses worldwide are using cryptocurrency in their transactions, but what does this mean for the future of finance?
While the adoption of cryptocurrencies in B2B transactions is still in its infancy, the popularity of these digital alternatives to traditional money is growing among businesses. That said, the future of cryptocurrency remains uncertain, particularly about the evolving regulatory environment around it. As with any significant technological disruption, finance leaders would do well to keep informed and stay one step ahead of the hype.
What is cryptocurrency?
Cryptocurrency, or crypto, is a type of digital currency that exists on decentralized blockchain networks. Blockchains have distributed ledgers spread across disparate computing networks, thus making counterfeits or double-spending practically impossible.
While there are now hundreds of cryptocurrencies in circulation, Bitcoin (₿) remains by far the best known. It’s also the oldest cryptocurrency, having first appeared in 2009. Other popular cryptocurrencies include Ethereum, XRP, and Tether.
What makes cryptocurrency distinct from traditional currencies is the fact it’s not
maintained by any centralized authority, such as a national bank or corporation. In other words, it is a peer-to-peer system valued entirely based on supply and demand.
What does this mean for B2B payments?
Many multinational companies have already adopted cryptocurrency to facilitate cheaper and faster international payments, mainly due to the fact that it is not tied to any particular economy. For example, a US-based company wants to send funds to a company in the EU. First, they will convert fiat currency into cryptocurrency, which will then be held in a secure digital wallet. The US company then sends the wallet address to the recipient, who will then convert it into the fiat currency of their choice.
The 3 main benefits of cryptocurrency?
There are 3 main benefits of using cryptocurrency for international transactions.
#1 Lower fees
Fees for cryptocurrency exchange services typically cost less than one percent, whereas conventional credit processing fees can reach as much as five percent. Nevertheless, exchange rates can still vary considerably.
#2 No specialized technologies
Moreover, transactions don’t require any specialized hardware or other expensive technology.
Security is another oft-cited benefit of using cryptocurrency or anything else on a blockchain network, for that matter. Transactions are virtually untraceable, and it’s impossible for anyone else other than the person with the digital wallet address to access the funds. The network is entirely built on cryptography, consisting of thousands of nodes worldwide to eliminate any single point of failure.
What about the drawbacks?
Because it’s based entirely on global supply and demand, which can be notoriously difficult to predict, cryptocurrencies are inherently volatile, often fluctuating by hundreds of percentage points within just one year. For example, a single Bitcoin was valued at just $1 in early 2011, rising to $32 a few months later and peaking at $19,000 in 2017. By contrast, fiat currency is typically far more stable since its issuing government backs it.
Moreover, despite the security advantage of blockchain technology, crypto exchanges can still be hacked, and, just like any other information, digital wallet addresses can still be phished. If this happens, there’s also no recourse since crypto balances typically aren’t insured.
What does the future hold for crypto?
Cryptocurrency is undeniably one of the most hyped-up technology developments of our time. For all the promise it offers, there remain complex and rapidly evolving regulatory challenges. That being said, as more multinational organizations adopt cryptocurrencies and governments aim to better support and regulate them, there’s a reasonable chance that cryptocurrency will eventually become an integral part of modern banking models.
Mazepay is not enabling payments based on cryptocurrencies right now, but just as we support 20+ different fiat currencies today we will support cryptocurrencies based on customer requests.
So far, we have not had any customer requests for this, which underpins the very limited adoption of crypto in B2B payments. However, we expect this to change rapidly as more real-world web3 solutions demonstrate value for businesses.