Cryptocurrency usage has dramatically increased. Once the darling of the dark web, Bitcoin has gone mainstream and today is the world’s largest cryptocurrency. In fact, due to the uncertainty created by the pandemic, it closed out record years in both 2020 and 2021. While still volatile, Bitcoin hit highs in both valuations and number of transactions in the last two years. But Bitcoin is not alone. In all, there are some 5,100 cryptocurrencies in market today. Other popular cryptos include Ethereum, Tether, XRP, Litecoin and Polkadot.
The market responds with innovations to store cryptocurrencies and make payments
With more crypto buyers emerging, merchants and companies are increasingly offering digital currency payment options across all channels. There is greater adoption of Bitcoin infrastructure, for example, when there is a concentration of financially savvy adults with high risk tolerance, a large degree of banking sector competition, growing distrust in banks and financial systems, more money-laundering activities taking place and a stronger rule of law.
There has also been impressive growth in merchants accepting cryptocurrencies as consumer demand for crypto payment options rises. Microsoft accepts cryptocurrency on their website and at the Xbox store. AT&T now accepts Bitcoin, as does Overstock. New crypto payments companies like Bitpay accept cryptos for payments with a 1% fee. Crypto offers payment solutions to merchants and loyalty rewards to users: payments can be made with digital wallets or crypto cards by Visa.
Visa also recently filed a cryptocurrency system patent that is meant to replace physical currency. Visa says its focus will be on blockchain digital currencies, noting that they want to continue their mission to revolutionize payment transactions. Mastercard has been working on collecting a trove of cryptocurrency patents, which they believe will give them an edge once central bank digital currencies debut. PayPal and Venmo will accept cryptocurrency for all online payments. PayPal account holders will be able to store, buy and sell popular virtual currencies. This move will make PayPal both a digital wallet and a cryptocurrency exchange. Square’s Cash App launched a Bitcoin Auto Payments Tool which allows users to make automatic purchases of Bitcoin. Cash App was initially launched in 2019 to facilitate app-to-app payments in fiat currencies.
With cryptocurrencies performing as a store of value amid the COVID-19 crisis, 2020 and 2021 also witnessed accelerated growth in the number of ATMs supporting digital coins. The number of Bitcoin ATMs exploded in 2020 with 13,000 new BTMs installed and operating worldwide by the end of the year. And in 2021 that number leaped to 34,000 BTMs globally. Fueled by greater acceptance of cryptocurrencies, including El Salvador announcing in September 2021 it would accept bitcoin as legal tender, cryptocurrency ATM market is expected to reach $1.88 billion by 2028
Will cryptocurrency regulations help or hinder growth?
Despite their growth in popularity and acceptance, cryptocurrencies are not for everyone. Through its decentralized network and limited number of coins, proponents say that by getting central banks and governments out of the currency game, the currency will maintain its value better over time. However, values oscillate mainly because they aren´t backed by governments. They reduce the need for intermediaries as P2P, B2C and B2B transactions can be made directly without banks, both domestically and internationally.
Central Bank Digital Currency (CBDC) is the digital form of the fiat money of a country and utilizes blockchain and distributed ledger technology, yet, is different from virtual currency and cryptocurrency because the latter is decentralized and lacks the legal tender status declared by the government. CBDC brings together the convenience and security of cryptocurrencies and the regulated, reserve-backed money circulation of the traditional banking system.
CBDC will likely be a game changer, bringing about a rapid shift to the banking ecosystem as more consumers and businesses adapt to a safe and low-cost way of accruing, storing and exchanging value. CBDCs will potentially reduce traditional currency on deposit with commercial banks, increase competition lead by higher deposits rates, encourage innovation in saving and borrowing and create greater risk for commercial banks.
Questions remain around how CBDC will be regulated. For the foreseeable future, as the pandemic persists and uncertainty surrounds us, expect continuing growth in digital currencies by consumers, business, financial services and payment services.