Crypto’s past, present and future: What are the risks?
By Jared Douville — April 20, 2023.
The cryptocurrency market has experienced significant growth in the past 18 months, and new mainstream use cases are emerging. This surge of interest raises important questions about the drivers of growth, the demographics of users, the purposes of transactions, and the impact of regulation.
To explore the future of payments and the coexistence of traditional and digital payment systems, PaymentsJournal spoke with Nabil Manji, Senior Vice President and Head of Crypto and Emerging Business at Worldpay from FIS, and Tim Sloane, VP of Payments Innovation at Mercator Advisory Group.
Who’s driving the growth of cryptocurrency adoption and why?
Just under 20% of American adults currently own cryptocurrency, according to research from Mercator. Ownership rates are higher among younger age groups, with 34% of 18–44 year olds holding crypto compared to 10% of those aged 44–65 and just 1% of those 65 and older. As the cryptocurrency market continues to grow, understanding the demographics of its users will be crucial for businesses looking to enter the space.
In a rapidly evolving cryptocurrency landscape, Nabil Manji, Senior Vice President and Head of Crypto and Emerging Business at Worldpay from FIS, identifies three broad drivers of growth. Technological innovation has expanded the use cases of blockchain-based technology beyond speculative investment to include peer-to-peer transactions and non-fungible tokens. Increased regulation has boosted confidence in cryptocurrency as a viable payment and exchange method. Finally, the emergence of central bank digital currencies and alternative payment rails has become a significant investment target for governments around the world, shaping the business and consumer market.
Vendors and Cryptocurrencies
In November 2021, there were 79 million blockchain wallets in use globally, leading to an increase in merchants accepting crypto at the point of sale. Nabil Manji, Senior Vice President, Head of Crypto and Emerging Business at Worldpay from FIS, identified three factors driving merchant interest:
First, merchants are keen to tap into the enormous market capitalization of crypto and offer payment options for high-ticket items like air travel and luxury goods. Second, merchants already support various payment methods and do not want payment method to prevent customers from completing purchases. Third, merchants are looking to reduce the cost of credit card fees and prepare their businesses for wider supply chain finance options.
Despite these benefits, merchants may feel uncertain about integrating crypto into their business due to unresolved issues such as accounting for crypto on their balance sheet, tax implications, and regulatory considerations. Additionally, the adoption of central bank digital currencies (CBDCs) is inevitable, and merchants must be prepared to accept them as legal tender.
As the details of CBDC adoption are clarified, it is crucial for both merchants and payment companies like FIS to understand the challenges and opportunities involved with crypto.
Cryptocurrency’s development hurdles
The adoption of cryptocurrency is facing challenges as the regulatory landscape is fragmented, and regulators struggle to classify and understand the different capabilities of blockchain-based crypto. While the technology is largely unregulated, there is a need to manage blockchain-based applications without stifling innovation. Regulatory requirements can help ease skepticism and represent a significant next step in the development of a legitimate crypto ecosystem. The future of cryptocurrency is expected to see continued expansion in blockchain-based applications, interoperability, and the digitization of life. There are practical use cases for crypto, such as applying digital identity and improving the efficiency of payments. While blockchain may not solve all problems, it can benefit the ecosystem by improving existing infrastructure and technology layers.
Oversight for Crypto and blockchain
Crypto and blockchain has become an increasingly important issue as the use of these technologies grows. While blockchain is largely unregulated as a technology, the use of cryptocurrency and related services has come under scrutiny from regulatory bodies in many jurisdictions. This has led to increased requirements for consumer protection, anti-money laundering measures, and reporting of suspicious activity. At the same time, there is a need to balance regulation with innovation, to ensure that decentralized blockchain-based applications can continue to develop and flourish. As the industry evolves, it remains to be seen how governments and regulatory bodies will adapt to this changing landscape and balance the competing demands of regulation and innovation.
The future of cryptocurrency
In the fast-paced world of crypto and blockchain, it’s hard to predict what the next five years will bring. However, experts anticipate several trends in the near future. FIS expects continued expansion of blockchain in areas such as NFTs, decentralized finance, CBDCs, stablecoins, and more, with widespread adoption by consumers and businesses within 3–5 years. Interoperability between different chains and assets is also expected to drive innovation and enable cross-border CBDC transactions. Furthermore, the COVID pandemic has accelerated the digitization of life, inspiring the exploration of new industries created by blockchain technology. While some argue that traditional currency works just fine, experts like Sloane and Manji see practical use cases for blockchain, such as digital identity and efficient account validation. Inefficient U.S. payment rails could benefit from new blockchain infrastructure or technology, although blockchain is not a solution for all problems.
