If you scan headlines over the past few weeks, it’s clear that cryptos, well beyond the marquee bitcoin, are making inroads into mainstream consumer and business activities.
Square recently bought $50 million bitcoin, PayPal is opening its network to allow payments in cryptocurrency and JP Morgan has announced that is has gone live with JPM Coin.
In an interview with Karen Webster, i2c President Jim McCarthy said we‘re still a ways out from mainstream adoption – but the shift is coming.
When it comes to secular change, there are very few innovations that come along and rapidly change the state of payments.
“Most things take 10 to 15 years to drive through the ecosystem,” McCarthy told Webster – especially when a range of stakeholders are involved, spanning two-sided markets, consumers, merchants and governments.
To get a sense of how difficult it is for cryptocurrencies to gain momentum in everyday life, consider Bitcoin. Perhaps the ‘pack leader‘ of cryptocurrencies, Bitcoin has roughly two-thirds of the market cap across the entire sector.
Webster noted that Bitcoin has been around for a decade and despite predictions of wide-spread mainstream adoption as a payment transacting conduit, Bitcoin usage has fallen short.
Part of the reason Bitcoin failed to live up to its anticipation has been the speculative enthusiasm surrounding the coin as an investment and and an asset class focused on building hedges against other holdings (as gold has traditionally been used).
It was (and in some cases still is) this speculative wild west of digital coins that has held back cryptos from being tied more closely to commerce, said McCarthy. The individual who wanted to spend fractional bitcoins on a cup of coffee must endure long transaction times and wild pricing volatility that ratcheted up (or down).
The Difference A Decade Makes
In the decade since Bitcoin’s debut, many technologies have evolved in the payments ecosystem to help set the stage for mainstream adoption.
Solely from a network perspective, cryptos offer tremendous efficiency. Much in the same way the internet – and the efficiency of the internet – has changed over time, advances in peer-to-peer connectivity and the emergence of tokens as a payment’s vehicle are opening new avenues for cryptos.
The rise of the “network of network” strategies on the part of Visa and Mastercard has opened the door for faster payments, for the electronification of payments – and for blockchain to underpin it all.
As McCarthy stated (with efforts from Visa such as partnering up with Wirex to bring crypto to everyday spending), “50 million plus merchants and an acceptance market, that’s hard to replicate in terms of a two-sided network.”
Against that backdrop, McCarthy said that using Visa and Mastercard as access points and leveraging the range of wallets on offer to store digital currencies can be a powerful accelerator of payments change. Back in May, i2c Inc. announced a partnership with Crypto.com’s end-to-end crypto ecosystem which consists of a Visa crypto debit card and a wallet app to buy and sell crypto while earning cash-back rewards (in crypto form). In this case, McCarthy maintained, digital assets are made spendable.
“We are the infrastructure that takes what is effectively a virtual wallet – in a mobile or online sense – and connects it to the real world, either eCommerce or face-to-face with a card,” he said.
The Demographics – And Digital Fiat
According to McCarthy, i2c’s own partners are seeing that, in his words, “the sky’s the limit” when it comes to making digital assets into everyday currency. As younger generations who are more familiar with mobile devices and digital technology begin to age, mainstream adoption will become easier.
Cryptos have also started to garner more attention from financial services, which naturally translates into increased involvement from governments and central banks that have thrown their hats into the ring – thus making digital fiat a serious consideration. China has been a leader in its efforts to trial and deploy a digital yuan. McCarthy also said that Sweden has been making some headway with its digital krona.
“It lays the groundwork, certainly for study, research, and development, if not full-fledged movement,” he said of central bank efforts and frameworks being developed by the BIS.
Most central banks have a rough timeframe of 2025 to get up and running with digital fiat. According to McCarthy, over the short term we’ll see more practical use cases leveraging cryptocurrencies – especially in the B2B space. He pointed to JPM Coin as a key advance in how cryptos might be used to reduce inherent friction in the financial services ecosystem.
In this case, the coin is being separated from its pure function as a monetary store of value and is being used as a token that can be passed in real time between known entities as a way to resolve the inefficiencies tied to cross-border correspondent banking.
It’s a space, he said, that’s ripe for disruption.
“There’s a lot of inefficiency, still, in business-to-business commercial payments that could very well be solved in combination with having fiat accounts and crypto token that you‘re able to pass among trusted parties,” he said.
Compliance and security standards must be robust in the long term for crypto to become spendable and widely adopted. According to critics, Crypto has been a conduit to fraud and money laundering.
However, getting into the crypto ecosystem is no easy task. The security measures in place – know your customer (KYC), documentation spanning passports and licenses – are more rigorous than are in place when using cash.
“We apply all those same kind of values to anything we‘ve been doing with any multicurrency platform,” he told Webster of i2c’s own security processes. “We leverage that information before you get onboarded to get a card. This is building on years of best practices in the payment space.”
Blockchain remains a key driver of cryptos future, both as a means of currency and store of value. The immutable, decentralized ledgers mean that transmitting everything from payments to digital drivers’ licenses to health records in a secure and portable manner holds much promise.
“It just takes time,” he told Webster, of the wider embrace of crypto and the blockchain rails that looms on the horizon. “I think we’ll look back and again, in 10, 15 years – and say, ‘Oh, that was fast.’”
The above is just a portion of the interview between Jim McCarthy and Karen Webster, CEO of PYMNTS, to discuss how blockchain will unlock the full potential of cryptocurrency. The Masterclass video can be viewed in its entirety below: