It wasn't too long ago that Wall Street analysts and their European counterparts were proclaiming cryptocurrency as nothing more than a passing investment trend. A lengthy list of financial experts did not consider cryptocurrency any threat to traditional payments. However, minds are being changed. Slowly but surely, the naysayers are coming to the realization that cryptocurrency is disrupting the payments industry and will continue to do so for the foreseeable future.
We assume you are familiar with the concept of disruptive technologies. A disruptive technology is one that is capable of completely changing the way an industry does business by disrupting the way things are normally done. One of the most visible examples of industry disruption is Uber, the well-known ride-hailing service.
Uber disrupted an industry
Love them or hate them, Uber disrupted the taxi and livery industries with a brand-new mobile technology that allowed for direct transactions between drivers and riders. With Uber in place, people in need of a ride do not have to stand on a street corner hailing a taxi or make a phone call to schedule a pickup. Instead, they just bring up a mobile app and let it be known they need a ride. The nearest Uber driver shows up within minutes.
Uber has been so disruptive that governments have made a point of regulating what they do in order to level the playing field between their drivers and traditional taxi and livery drivers. You know something has been disruptive when the government steps in to regulate it.
We can take that same concept and apply it to cryptocurrency and electronic payments. Cryptocurrency hasn't quite achieved the same level of disruption that Uber has, but it's well on its way.
The traditional payments industry
One of the reasons financial experts once felt that cryptocurrency was no threat to the payments industry is the simple fact that the industry's practices have been embedded for decades. Thanks to credit cards and the ability of banks to electronically transfer funds between accounts, we enjoy a worldwide payment system capable of accommodating payment needs virtually anywhere.
The downside to the traditional payments system is centralization. Whether people know it or not, traditional payments are dominated by governments and central banking systems. Even private entities like PayPal are tightly controlled by regulations and bank standards they cannot escape from.
Along with centralization comes red tape and fees. The red tape comes into play when you are talking about how transactions are processed. It creates a situation in which transactions can take days to finalize. As for the fees, you know the story. Everyone from the bank to the payment provider has to make money. That money is made by assessing fees on transactions.
Cryptocurrency changes the game
So, how is cryptocurrency disrupting the payments industry? By changing the game. The unique characteristics of cryptocurrency are what make it a superior option for payments among buyers and sellers not afraid of the technology.
Let us start with the decentralization. When Bitcoin was first introduced back in the day, one of the things people were most excited about was the fact that it was not controlled by a government or central bank. Moreover, it would never be under such control. Bitcoin was developed as a completely decentralized monetary system.
Decentralization means that governments and central banks cannot control how people use their bitcoins. The same is true for any cryptocurrency. Transactions occur directly between people and/or business entities on their own terms.
Next up is the speed. Where traditional payments can take anywhere from hours to days before being finalized, cryptocurrency payments are nearly instantaneous. Even on the slowest networks, transactions can be finalized within minutes.
Finally, think about fees and charges. Your average cryptocurrency transaction is subject to fees considerably lower than traditional banking fees. In some cases, cryptocurrency transactions are absolutely free. You cannot beat free when it comes to electronic payments.
The concepts of decentralization, speed, and reduced fees are well known within the cryptocurrency community. But sometimes they can seem like intangible concepts. So let's get down to the practical. How do these concepts apply practically to the idea of using crypto as a payment system?
Let us illustrate it by assuming you are visiting the Coinbet.com website in search of a Bitcoin casino. You want to play the slots using bitcoins as your bankroll.
Practically speaking, decentralization gives you the freedom to make your casino deposit without having to worry about involving your bank. Most countries recognize Bitcoin as a payment system even though it is not legal tender. So you can deposit bitcoins at your chosen gambling site without ever revealing your banking information. Your bank is subsequently left out of the transaction.
In countries where online gambling is restricted, this is a big plus. Depositing bitcoins makes it very difficult for anyone to know that you play slots online.
Also note that your deposit would go through almost instantly. For purposes of practicality, that means you would be ready to start playing slots just as soon as you completed the transfer of coin. There would be no waiting for the transaction to be approved. And of course, the casino site charges very little, if anything at all, to make a deposit.
Still some resistance
Bitcoin's original developer saw his creation as an alternative monetary system for doing business outside of the restrictions of fiat currency. And although Bitcoin has become more of a store of value in recent years, its underlying principle remains the same.
Whether you are talking Bitcoin, Litecoin, Monero, etc., the strength of cryptocurrency is not in its store of value properties. Its strength lies in its use as a monetary system. And yet, there still is quite a bit of resistance to this idea.
As just one example, a handful of the world's most well-known payment systems have resisted getting involved with cryptocurrency for years. Their chief concern is the volatility. They worry that merchants will not be willing to jump on the cryptocurrency bandwagon for fear that price volatility could jeopardize their businesses.
If merchants will not get on board, which is understandable, then payment systems have no incentive to adopt cryptocurrencies. Why? Because it takes two parties to complete a transaction. Let's say PayPal decided to open its doors to Bitcoin and Litecoin. If they could not get any merchants on board, the vast majority of cryptocurrency payments would be between individual users. There is not enough money to be made with such a limited audience.
As such, PayPal will not touch cryptocurrency payments right now. The only way to get them to change their position is to convince large numbers of merchants that cryptocurrency payments are a good thing. That is where the disruptive nature of cryptocurrency becomes so important.
Crypto is making inroads
As previously mentioned, cryptocurrency is not yet enjoying the same level of disruption as some other well-known disruptive technologies. But it is making inroads. Fortunately, the progress has been quite steady.
We are beginning to see the emergence of crypto in the real world. For example, make a visit to London and hail one of their famous black taxis. You might be offered a ride from a driver who accepts Bitcoin or Litecoin payments. More and more taxi operators are going the crypto route to accommodate foreign passengers.
Visit any one of the more progressive cities in the world and you are likely to find cafes and coffee shops willing to accept crypto payments. Then there are online retailers as well. This is where crypto really shines. Greater numbers of retailers are taking crypto payments alongside credit and debit cards.
And of course, let's not forget online gambling. This is one of the strongest sectors for crypto payments right now. Online gambling and cryptocurrency seem to have been made for one another, given the privacy and security crypto payments offer.
Most importantly is an emerging trend among a small number of payment providers to prepare for what they believe is the inevitable adoption of crypto as a payment solution. If you are familiar with MasterCard's announcement from 2018 regarding cryptocurrency, you know what we are talking about here.
MasterCard has reportedly begun work on a method for speeding up cryptocurrency transactions on the merchant's end. Part of the development of that system is encouraging merchants already accepting MasterCard to consider taking crypto payments as well.
The disruption is here
Stepping back and honestly assessing the cryptocurrency space clearly shows that disruption is already here. Even something as seemingly minor as gambling online with bitcoins is having a major impact on how cryptocurrency is viewed. If you need proof of the disruption, just look at all of the investment.
Investors have a single goal of making money. They would not be putting billions of dollars into cryptocurrency if they did not believe in its value. Cryptocurrency may be more of a store of value right now, but its ability to disrupt the payments industry is quite visible. And with each passing day, the disruption becomes more pronounced. It may be that cryptocurrency will eventually replace what we now know as the payments industry.