In an age where efficiency and trust are paramount in doing business, cryptocurrency has been regarded favourably by world leaders who see the beneficial role it will play in the future of international trade.
There are several advantages of using cryptocurrency given that traditional transactions are facilitated through centralized intermediaries like banks, governments, and commerce platforms. Due to their centralized nature, these middle men are the targets of hacks, which has taken place with growing frequency and concern as of late. Traditional banking involves lengthy processing times, high bank fees, and unfavourable exchange rates; it is also inaccessible to a large portion of the world’s global population.
Institutions are embracing change
The rise in safer coin investments and institutionally backed cryptocurrencies has lead to widespread adoption and investor confidence in the blockchain future.
In November 2018 at the Singapore Fintech Festival, Christine Lagarde, Managing Director of the International Monetary Fund, spoke about the potential benefits of cryptocurrencies. In raising the case for central banks to issue a “state-backed token, or perhaps an account held directly at the central bank”, Lagarde mentioned that “various central banks around the world are seriously considering these ideas, including Canada, China, Sweden, and Uruguay. They are embracing change and new thinking—as indeed is the IMF.”
Cryptocurrency reduces the cost of doing business
Cryptocurrency reduces the traditional hassle of dealing with fraud risk, fees, and time when it comes to doing international business. It offers a quicker and less expensive way of mitigating risk and processing transactions globally.
Avoid risking losses due to foreign currency conversion
Foreign currency conversion involves incurring transaction fees. Furthermore, processing time for cross currency payments typically take a number of days, during which foreign exchanges rates fluctuate and can cause losses to either party.
While businesses typically use FX hedging products to protect against potential losses, buyers and sellers can avoid risking losses due to foreign exchange fluctuations if they agree to transact using the same cryptocurrency. The speed of the cryptocurrency settlement significantly reduces the effect of adverse exchange rate changes on buyers and sellers.
Furthermore, businesses can proactively manage their cryptocurrency accounts by converting when rates are favourable and holding funds for later use.
Digital trust and authentication incentivizes trade
Cryptocurrency offers a digital way of validating transactions, allowing for greater consumer protection and confidence in trade. Lowered uncertainty allows for individuals to purchase and sell goods & services with greater ease of mind. In regards to consumer protection, Lagarde mentioned that a “digital currency could offer […] a backup means of payment”, potentially reducing system reliance on payment providers.
With increasingly heightened adoption, consumers are preferring digital means of payment for security, ease of mind, and convenience. Entrepreneurs and organizations are beginning to view accepting payment in the form of cryptocurrency as a way to appeal to their customers and gain a competitive advantage.