TECH | STARTUPS
Those who are familiar with me are aware of my lack of enthusiasm for cryptocurrencies. I am not a fan.
Reason?
Many crypto fans lie.
Either that or they poorly understand existing financial systems and the technology driving their revered swiss knife. This is evident in their inability to understand what sends the prices of cryptocurrencies crashing continuously for weeks, why rug pulls are prevalent and why transactions work the way they do.
The price of any cryptocurrency increasing is hinged solely on an increase in the number of holders/holdings. It’s Basic economics. An increase in quantity demanded will cause an increase in price as supply is limited.
Telling people to invest in cryptocurrencies is not driven by the existence of any inherent value. Nah. More people buying the coin will send its price up meaning those who bought early can sell at higher prices than they bought since their holdings are now worth more.
Who are these people that bought early?
The very ones telling you and me to buy crypto because “it is the future” 😐
Trying to make money off people by saying fiat needs to go because it is government-controlled is proof of a lack of understanding of money, purchasing power, and a host of economic concepts and systems. Government control is not enough to declare anything irrelevant.
Is fiat flawed? Yes.
Will Crypto “fix” it? No.
Regardless of my reservations about cryptocurrencies, I cannot ignore their relevance in the future of finance. Interestingly, the most evident mainstream use case for the most popular cryptocurrencies like Bitcoin and Ethereum is not as widely proclaimed as many extreme ideologies. It has been staring us in the face all along with less PR; Cross-Border Payments.
Regardless of your location across the world, you can hold Bitcoin. The same cannot be said about the dollar or the naira. With a wallet address, Bitcoin can be sent and received anywhere in the world. I still cannot understand why it is not touted as the preferred option for cross-border transactions.
Possibly a lack of enough payments infrastructure to support it? Resistance from online merchants and e-commerce platforms? Lack of widespread knowledge? Is there something to know? Please share in the comments. I would appreciate any pointers 🤲🏾
Stable Coins & CBDCs
Now, there are reasons many would choose to avoid cryptocurrencies for transactions. For example, nobody wants to receive 0.04BTC which equals $10 today as payment for a shirt and in a week the same 0.04BTC equals $6. It would be difficult for SMBs to properly account for that in their books. Bitcoin and all cryptocurrencies are volatile. True. But that does not eliminate the role of digital currencies.
This leads us to Stable coins.
Some cryptocurrencies are pegged to the value of fiat currencies. USDC to the dollar and NGNT, the naira. This means that we can be free from the issue of the volatility of popular cryptocurrencies as these guys retain fiat value. Most international transactions are pegged to the dollar, USDT is easier to hold/own outside the US than a dollar account. The recent fiasco with Tether does question the trust that stablecoins can earn.
Central Banks across the world have been developing Central Bank Digital Currencies (CBDCs). These are digital currencies developed by Central Banks with the equivalent value of the country’s fiat. They will rival stable coins and gain better public acceptance. If CBDCs become more popular, I believe they would become the go-to currencies for online transactions and cross-border payments.
Will they rival crypto? I don’t think so. In fact, their existence should increase crypto adoption as it would be faster and cheaper (I believe) to buy and sell digital currencies by simply swapping ’em (If this is not accurate, please explain or point me to relevant authorities to read from 🙏🏾).
I do not see why many think it would be an either-or situation with fiat and crypto. Just like with traditional and digital banks. Both can successfully exist with a little adjustment on both parts. The existence of innovative solutions hardly kills existing options. Unless they are utterly useless to the future. It mostly opens the door to new opportunities and solutions.
Cars and Planes did not kill bicycles but computers killed typewriters.
Zoom and video conferencing platforms haven't killed the events business.
Airbnb hasn't killed the hospitality business.
These solutions have expanded the existing market (create new ones even) and increased possibilities.
Will the use of digital currencies as the preferred means of transactions kill current cross-border solution providers? I don’t think so. Those who are rigid to change might be wiped out but innovators will thrive. Providing crypto payment options or wallets for their existing users will ensure they do not lose their users to crypto exchanges and wallet providers. I would prefer to see mergers and acquisitions instead. Crypto exchanges acquire payment companies and vice versa instead of either offering the services of the other like we are seeing currently.
With technology, there is no end to what is possible. But, there is no returning to what was. We won’t be returning to a world where crypto never existed. The window for that to occur has passed. We are in a new dispensation.
Whether cross-border payments would remain a problem in the coming years is yet to be seen. Are we at the same point we were ten years ago? No. Would we be at the same point we are now in ten years? Your guess is as good as mine.
As always, feedback is appreciated!
Originally, this was an article on Cross-Border Payments that has been sitting in the drafts for months. Rather than continually postponing when I’d build out the rest of it, I decided to publish the parts I’d written months ago and renamed the article.
This is my first attempt to reduce the size of my drafts by publishing what I already wrote and quit chasing perfection 🙃
