Cryptos are having a moment.
Scan the headlines over the past few weeks and cryptos, well beyond the marquee bitcoin, are making inroads into mainstream consumer and business activities.
PayPal is opening its network to allow consumers to shop using cryptocurrency. Square bought $50 million of bitcoin. J.P. Morgan said late in the month that it has gone live with JPM Coin.
In an interview with Karen Webster, i2c President Jim McCarthy said we’re still a ways out from mainstream adoption — but the shift is coming.
It is the rule of thumb, when it comes to secular change, that very few innovations come along to rapidly change the state of payments themselves.
“Most things take 10 to 15 years to drive through the ecosystem,” McCarthy told Webster — especially when a range of stakeholders are involved, spanning two-sided markets, consumers, merchants and governments.
To get a sense of just how hard it is for cryptocurrencies to gain, well, currency in everyday life, consider bitcoin, perhaps the granddaddy of cryptocurrencies — and still the 900-pound gorilla in the space, with roughly two-thirds of the market cap across the entire sector.
Webster noted that bitcoin has been around for a decade, and while the conventional wisdom had been that the digital offering would be used far and wide as a payment transacting conduit, those predictions have been wildly off the mark.
Part of the reason bitcoin failed to live up to the anticipation, contended McCarthy, has been that the enthusiasm surrounding buying and holding (and speculating) with bitcoin as an asset class has focused on building hedges against other holdings (as gold has traditionally been used).
It was (and in some cases still is) this speculative wild west of digital coins that has held back cryptos from being tied more closely to commerce, said McCarthy. The mechanics and clumsiness of it all have not helped. The individual who yearned to spend fractional bitcoins on a cup of coffee was subject to slow transaction times and wild pricing swings that ratcheted up (or down) the value of the coin itself, and thus what that fraction might be worth.
The Difference A Decade Makes
But in the decade since bitcoin’s debut, technologies have evolved in the payments ecosystem that are helping set the stage for cryptos to become more widely adopted.
There’s tremendous efficiency from a pure network perspective, he explained, much in the same way, the internet — and the efficiency of the internet — has changed. Advances in peer-to-peer connectivity and the emergence of tokens as a payments vehicle are opening up new avenues for cryptos.
The emergence of the “network of network” strategies on the parts of Visa and Mastercard have opened the door for faster payments, for the electronification of payments — and for blockchain to underpin it all.
As McCarthy stated (with a nod to efforts such as Visa’s teaming up with Wirex to bring crypto to everyday spending), “50 million plus merchants and an acceptance markets, that’s hard to replicate in terms of a two-sided network.”
Against that backdrop, he said, using Visa and Mastercard as access points and leveraging the range of wallets on offer to store the digital currencies can be a powerful agent of payments change. Back in May, i2c Inc. announced a partnership with Crypto.com’s end-to-end crypto ecosystem, which consists of a Visa crypto debit card and a wallet app to buy and sell crypto and earn cash-back rewards in crypto form. In this case, maintained McCarthy, digital assets are made spendable.
“We are the infrastructure that takes what is effectively a virtual wallet — in a mobile or online sense — and connects it to the real world, either eCommerce or face to face with a card,” he said.
The Demographics — And Digital Fiat
According to McCarthy, i2c’s own partners are seeing that, in his words, “the sky’s the limit” when it comes to making digital assets into everyday currency.
Mainstream adoption will be made easier in part by demographics, as younger generations are more at ease with using mobile devices to transact, and where developing economies in Latin America and Asia do not have the legacy banking infrastructure in place seen elsewhere, translating into greenfield opportunities for crypto players.
As cryptos have garnered more attention in financial services, naturally, governments and central banks have thrown their hats into the ring — and thus digital fiat is seriously under consideration. China, of course, has been a leader here in its efforts to trial and deploy a digital yuan. McCarthy said, too, that Sweden has also been making some headway with its digital krona.
“It lays the groundwork, certainly for study research and development, if not full-fledged movement,” he said of central bank efforts and frameworks being developed by the BIS.
In the meantime, as central banks look toward a rough timeframe of 2025 to get up and running with digital fiat, McCarthy said that over the short term we’ll see more practical use cases leveraging cryptocurrencies — especially in the business-to-business space. He pointed to the JPM Coin as a key advance in how cryptos might be used to reduce friction inherent in the financial services ecosystem.
In this case, he told Webster, the coin is being separated from its pure function as a monetary asset and being used as a token that can be passed in real time between known entities as a way to resolve the inefficiencies tied to cross-border correspondent banking.
It’s a space, he said, that’s ripe for disruption.
“There’s a lot of inefficiency, still, in business-to-business commercial payments that could very well be solved in combination with having fiat accounts and crypto token that you’re able to pass among trusted parties,” he said.
Longer term, in the drive to make crypto spendable, beyond the rails themselves, McCarthy said that compliance and security standards must be robust. Crypto has been held up by critics as a conduit to fraud and money laundering.
But, as he noted, getting into the crypto ecosystem in the first place is no easy task, and in fact the security measures in place — know your customer (KYC), documentation spanning passports and licenses — are more rigorous than are in place when using cash, that most ubiquitous store of value.
“We apply all those same kind of values to anything we’ve been doing with any multicurrency platform,” he told Webster of i2c’s own security processes. “We leverage that information before you get onboarded to get a card. This is building on years of best practices in the payment space.”
Blockchain remains a key driver of cryptos’ future, both as unit of currency and store of value. The immutable, decentralized ledgers mean that transmitting everything from payments to digital drivers’ licenses to health records in a secure and portable manner holds much promise.
“It just takes time,” he told Webster, of the wider embrace of crypto and the blockchain rails that looms on the horizon “I think we’ll look back and again, in 10, 15 years — and say, ‘Oh, that was fast.’”
