In the future, who knows? Perhaps there will be a universal barcode a merchant can put on their shop window or website and receive payment from any cryptocurrency at any time. If not, merchants will have decisions to make. Do they wish to accept Bitcoin? Or do they wish to accept not only Bitcoin but also some of the various cryptocurrencies on the market, such as Dogecoin. Do they wish to accept stablecoins and/or Central Bank Digital Currencies (CBDC)? Ultimately, consumers will have some say on which mediums of exchange ultimately get adopted in the future, but one thing seems for sure: touchless payments are the way of the future and crypto assets can make that payments reality happen.
There exist today barriers to direct acceptance of crypto in commerce. The merchant, who just wishes to get paid quickly and easily, wants liquid assets in traditional dollars. They want to get dollars to their bank accounts so they can pay their merchants, etc. They don’t want new steps, let alone extra steps. Moreover, when we spend cross-border, we expect the dollars to be easily convertible into local currencies. To achieve this requires a whole new crypto infrastructure of custody, liquidity providers, etc. It’s an entirely new backend process that must be developed.
Consumers and merchants will choose which mediums of exchange they prefer. Stablecoins have captured a significant share of the crypto market. Bitcoin, stablecoins, and NFTs seem to be the leading use cases at the time of writing. Numerous stablecoins are growing rapidly today, including USDC and USDT, etc.
Stablecoins have been deployed across varied blockchain networks. You could use USDC atop Ethereum, Solana, Stellar, etc.. If consumers and merchants choose numerous stablecoins in commerce, the fragmentation of the market could lead to practical technical challenges with multiple stablecoins used in commerce.
Use cases for stablecoins are growing, in particular in B2B high value transactions. At the time of writing, the average value of a stablecoin transaction is more than $10,000. They’re also being used to stream payroll in real time. Stablecoins behave as a payment rail, in part because crypto capital markets offer more efficient, 24/7 trade settlement, as well as B2B use cases.
Regulators prefer standardization. Both the public sector and Fortune 500 are working to build out a standardized crypto infrastructure. The implementation thereof will be determined by how consumers and merchants use stablecoins, while also weighing first and foremost the potential benefits and, second, the potential risks.
People and businesses need 24/7 liquidity, instant conversion between assets, etc. When one holds Bitcoin, they might want to spend bitcoins. But, many merchants don’t accept Bitcoin. The bitcoiner must therefore plan ahead. They sell their bitcoins and receive the funds through an ACH. It can take as long as 3-5 days. They then purchase goods with their debit card.
Moreover, it would be quite confusing and challenging for a local dry cleaner, coffee shop or any merchant to receive payments via QR code in Bitcoin. To enable such a system in the digital currency world, a consumer would need a wallet which supported every single stablecoin or every single blockchain. The challenge is to enable seamless transfer of value across currencies in a network.
At the end of the day, merchants care about selling their product or service, and, ultimately, you want to support the payment method a consumer might want to use. It was once having to accept a handful of card networks. Today, it’s having to accept numerous cryptocurrencies. It will take a concerted effort by both the private and public sector to streamline crypto payments globally.
CBDCs: What are the opportunities?
Central banks globally have been exploring Central Bank Digital Currencies (CBDC), which are best understood in the context of the innovation happening in the open source crypto ecosystem. Much of what’s been learned in crypto technologies could be applied to CBDCs. At the very least, the work of open-source developers must inform how central banks think about designing CBDCs. There will also be high-level conversations about CBDC policy implications.
In any country, you can have a card or credential issued from a bank out of San Francisco, which you can use to pay for coffee. The coffee merchant doesn’t have to think twice about it. They receive local fiat currency from their bank. The details have been attracted away on the backend. This system works today, and people are not exactly clamoring for an alternative. Furthermore, many people still prefer cash.
It’s likely that, at some point in the near future, multiple CBDCs will be on the market, and they will run on a number of different networks. If we lived in a world with numerous fiat backed digital currencies—both stablecoins and CBDCs—there is potential for incredible fragmentation. CBDCs and stablecoins are top-of-mind topics for most policymakers and regulators across the world, working closely with regulators. It will be crucial to have consumer protection, regulatory clarity, and standards. It will also be crucial to having consumer choice.