Cryptocurrency has revolutionized into becoming a new method of payment in the financial system. It continues to gain ground and gradually replaces money on the exchange market. Even while pondering the discussion of crypto being used as payment, many countries have approved its general acceptability.
Cryptocurrency is blockchain-based technology, it's a medium of exchange that's not issued by the central government, it is rather issued by individuals exclusively. The first-ever generated cryptocurrency known as Bitcoin was created to be an alternative to legal tender, but not to be controlled by Central banks and Commercial banks, but independent of them. The Financial currency of the world is gradually evolving and moving at a faster pace. And Customers are continually demanding more from the payment industry. Cryptocurrency has advanced into the commerce industry breaking barriers in international trade.
Here are reasons why Cryptocurrency is gradually gaining ground to become a new means of payment.
It Offers a Better Payment Security
Credit card fraud has become rampant since the pandemic in 2020. The fraud report on credit and debit cards rose during this period, making it insecure to perform transactions using these cards. Often, small businesses are targeted with this kind of fraud which turns out to cripple their businesses.
Unlike debit and credit cards, cryptocurrency is a more secure means of payment. This is possible because of the nonexistence of a third party verifying the transaction. The transaction data of the customer doesn't get stored in a central hub that breaches frequently, but it is rather stored up in their crypto wallet. For example, coin.space - the most popular cryptocurrency wallet - helps secure over 24 million wallets, has been used to transact over $120B, and offers the lowest fees on their transactions.
There is also the blockchain general ledger that is used for the verification and recording of every transaction, which ensures its security, thereby making it hard for someone's identity to be stolen.
Transactions In Crypto are Irreversible
A cryptocurrency payment cannot be reversed once done. It becomes permanent. This can be advantageous and not beneficial for businesses. Since there is no third party involved. Transactions can only be refunded by the individual that received them. For businesses not to be on the disadvantage side of this, proper recording is required, to note down the amount received from customers and wallet addresses. It saves the business from avoidable losses.
The irreversibility of cryptocurrency payment has also made businesses manage their funds (Income) effectively. With an adequate and up-to-date record being kept, if a customer requires a refund, it's easy to pay them back manually without no chargebacks.
Although the irreversibility of cryptocurrency has helped businesses, it also gives room for inefficiency, where there are a lot of refunds to be done, and the business workers shift their attention from the business to refunding payments to individual customers.
Lower Payment Fees
Business owners are usually burdened with the fee to make a transaction through payment systems such as PayPal and the likes that charge a fee of up to 4% and more per completed transaction. Hence, the reason why Cryptocurrency is a better means for everyday payment. Cryptocurrency transaction gas fee is relatively much lower. Some exchange platforms offer a 1% fee charged for the international payment. This is possible because cryptocurrency isn't linked or connected to the Central government or bank. Additional benefit is that a business owner doesn't have to wait or be delayed for payments to be cleared by a foreign bank or pay the additional cost.
Unlike governmental financial institutions where you need to register for an account and give out all your details to make transactions, Cryptocurrency has a level of privacy. This means that your details aren't displayed, just your wallet address that identifies you on the blockchain. So, no specific information about you was included or revealed in the transaction.
In the blockchain ledger, some tools enable individuals to look up data on transactions. All cryptocurrency transaction data are publicly displayed on the blockchain ledger. The amount of cryptocurrency sent to a wallet address from another one is displayed on this ledger. And the total amount of cryptocurrency stored up in the wallet can be seen. The transparency level of cryptocurrency payment can hence drastically reduce the fraudulent acts committed in transactions. This way, no one can claim funds that they don't have stored up in their wallet, or pretend not to have received the fund, because it's all displayed in the blockchain ledger.
The benefits of Cryptocurrency as a means of payment won't be complete without recognizing its value or potential for an increase in value. The value of Cryptocurrency can't be neglected, that's why investors keep investing and holding Cryptocurrencies. With its wide acceptability rate around the globe, this will cause a great value for Cryptocurrency with less technical hurdles and become more accessible by all. It also can hedge against inflation and its diversification benefits. Adding crypto stocks to your asset portfolio begins to have a major part of your portfolio.
Just as there are benefits to why Cryptocurrency can soon become a new means of payment, there are also some implications that business owners need to understand, so they can weigh their options properly.
There are tax implications for using Cryptocurrency. This is because the IRS considers Cryptocurrency as property for tax purposes. This denotes that anytime you receive Cryptocurrency; it must be reported as a gross income based on the market price as of when received. So, when you buy, sell or make use of Cryptocurrency you are automatically subjected to a capital gain tax.
Cryptocurrency being taxable can get complicated easily when you don't have an appropriate record for the prices of the Cryptocurrencies when received and when sold. Hence you would need to manage the use of Cryptocurrency for your business, instead of using it for daily sales. The best solution to this problem is to always record your transactions immediately you receive it.
Using Cryptocurrency as a means of payment doesn't reduce the risk attached to it. It is still considered risky for businesses. Although it's immune to inflation and can't be manipulated by the Government of any country, it still has a portion of the risk in those benefits. Cryptocurrency can be a hedge against inflation but it is still extremely volatile. The prices of these Cryptocurrencies are mostly determined by supply and demand, which means it has the potential of decreasing in value.
Cryptocurrency rates in exchange vary accordingly, and it is difficult to determine an accurate rate for the currencies. The difficulty to determine a realistic rate occurs because Cryptocurrencies are purchased and sold through different Cryptocurrency exchange platforms, which all set different prices. But to overcome that pitfall, instead of using a Cryptocurrency exchange, two parties can agree on a rate and exchange directly.
Avenue for Fraud
Cryptocurrency systems being anonymous on their transactions makes them subjected to money laundering. Due to the fact that it doesn't show personal details and specific information of individuals, criminals have learned this to be another avenue to launder money without being caught. So, it's been used for a large number of criminal activities, some of which include human trafficking, robbery, and drugs because all payments cannot be traced.
Cryptocurrency gives a lot of benefits to its users, like its speedy transactions, less transaction cost or no cost at all, and its peer-to-peer transaction that does not require the need of a third party or bank for verification. So, with this, Cryptocurrency is a reliable alternative to legal tender and can be used as a new means of payment without any counterfeit issues. But it is advisable to weigh your options with their implications to know if their benefits still overshadow their implications.