Markets

The Promise of Stablecoins: How Blockchain Can Transform Cross-Border Payments

By Guy Hirsch, U.S. Managing Director, eToro

For years, cross-border payment processes have been a functional, yet flawed, aspect of global commerce. In fact, while globalization has strengthened interconnectivity worldwide, actions as simple as currency exchanges or wire transfers are still considered to be a costly and time-intensive undertaking. To put it simply: As the general public becomes frustrated with the status quo, traditional cross-border payments will soon be a thing of a past. In preparing for the road ahead, international corporations have begun experimenting with advancements in cryptocurrency in an effort to bring the immutability and efficiency of blockchain technology to the forefront of the global commercial ecosystem.

Unlike traditional cross-border payments methods, cryptocurrency transactions carry no excessive surcharges. International payments can be made without the need of a middle man or lofty exchange rates, and processing times are near instantaneous in comparison to the requirements of conventional wire transfers. What’s more, cryptocurrency transactions are verified by other participants in the network, reducing chargebacks and ensuring that purchases are adequately authenticated.

Faced with demand and desire to innovate, major multinationals, from Microsoft, to Subway, to Overstock.com, have begun to accept cryptocurrency as a viable method of payment. According to data from coinmap.org, there are a staggering 12,928 stores that accept bitcoin around the world. However, while many of these companies have found success with cryptocurrency initiatives, there are still looming inefficiencies that must be addressed before widespread integration of this technology can occur.

A key concern is market volatility. Since bitcoin’s meteoric rise in December 2017, we have entered a somewhat unpredictable landscape with regard to the the industry’s market value. In fact, most cryptocurrencies are still not perceived to be a viable mainstream medium of exchange — especially with regard to cross-border transactions. For many global corporations, the value of cryptocurrency is simply too unstable to hold weight when operating in different countries with different exchange rates. This is a significant obstacle to widespread integration. How can you possibly use cryptocurrencies as a viable method of payment when its value fluctuates by the second?

Cryptocurrency companies recognize this, and have begun creating a new iteration in the evolution of cryptocurrency with the potential to fortify the exchange with embedded stability protocols. Dubbed “stablecoins,” these new cryptocurrencies operate by being tied to the value of a fiat currency like the euro or U.S. dollar. If the price rises or falls below a predetermined threshold, mechanisms are put into place to equalize its market value. For payment processors, stablecoins hold tremendous potential in decreasing the potential volatility of cross-border transactions within the space. With increased stability, merchants will be more likely to accept crypto payments for mainstream products, and the general public will be far more likely to consider using cryptocurrencies as a viable medium of exchange.

It’s a short-term solution to a long-term problem, and mainstream companies would be wise to consider early adoption of stablecoins in an effort to get a leg-up on the competition. Soon, if not already, stablecoins will be considered a gateway to the widespread adoption of cryptocurrency on a global scale, and companies in a wide variety of industries will be vying for potential avenues for integration. This is a once-in-a-generation opportunity for many small to medium enterprises (SMEs) in the payments industry to become the first to pioneer cryptocurrency integration on a grand scale.

Payment processor Square is an excellent example of this. The company recently announced that it had received a BitLicense from the New York Department of Financial Services, intending to use the cryptocurrency business certificate to further its international payment platform. The decision serves as a crucial step for Square as the company works to create a global platform capable of combating Apple’s 61% monopoly on the mobile Point-of-Sale software (mPOS) industry. Toppling Apple from its #1 position is going to require more than a sleek hardware, ecosystem strategy, and fantastic execution. However, with cryptocurrency, and stablecoins in particular, Square can gain significant market share by making actions such as paying for dinner a seamless process even if you’re from another country or don’t have a bank account.

While there are still key hurdles that exist before cryptocurrency will ever be the preferred method for payments, we are much closer than you think. Stablecoins will be a key piece in this puzzle, and companies looking to stay ahead of an ever-changing curve would be wise to consider using them to bridge the gap between the centralized and decentralized economy. Over time, the promise of cryptocurrency will become too strong to ignore, and its value will ultimately permeate businesses in every practice area and in every region of the world.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.