Digital Currencies: On the Verge of Mainstream?
From their inception in the early 2010s, until their meteoric rise to fame in 2017 on the back of Bitcoin’s astronomical bull market, digital (crypto) currencies were relatively obscure. Despite this, the technology behind them, blockchain, has robustly demonstrated its potential for use in financial services. As a cryptographically secured decentralized ledger system, it is ideally suited to the transparent and incorruptible recording and facilitation of global financial transactions quickly, cheaply and securely.
In fact, cryptocurrencies and networks such as Ripple and RippleNet have been used as alternative settlement mechanisms for international trade transactions for some time now. At Euro Exim Bank, we have been using this technology to provide seamless global payments to our customers for years.
PayPal & China
Two recent developments are crucial for the full-blown mainstream adoption of digital currencies. In October 2020, PayPal rolled out support for customers to buy, sell and hold major cryptocurrencies such as Bitcoin, Ether, Bitcoin Cash and Litecoin, and use them to pay for goods and services at merchants on the network.
This year, China has also rolled out its own digital currency backed by Yuan deposits held by China’s central bank. This is a landmark move as it is essentially the first state backed digital currency that is accepted as legal tender.
Together, these two developments are critical because both bring digital currencies to the mainstream, while China’s move further provides the first legal framework for digital currency as legal tender. Of course, with nation backed digital currencies, the fundamental idea of cryptocurrencies being uncontrolled and decentralised is somewhat challenged, but sovereign backing is a critical step towards a proper legal framework and wider acceptance.
What Holds Digital Currencies Back?
The technology is sound and has proved itself; it is convenient, cheap, fast and extremely reliable. So, why have digital currencies not gone full mainstream yet?
Well, because of two important factors. On the one hand, a lack of sound legal frameworks; no way to enforce debts in court etc… One the other hand, cryptocurrencies are very volatile with huge price fluctuations even within a single day; an important component of a reliable currency is a relatively stable value.
Overcoming these two hurdles will put digital currencies firmly on the road to mainstream, and PayPal’s acceptance and China’s backing may well tilt the balance properly in favour of digital (crypto) currencies.