Cryptocurrencies are in the news constantly. Not a day goes by that you don’t see some article about Bitcoin, Ethereum, Ripple, or some other cryptocurrency. But what are cryptocurrencies? What is it good for? And why is it so important?
This article tries to seek answers to these questions and shed some light on the world of cryptocurrencies.
Higher Transaction Speeds
Transactions can be completed much faster with cryptocurrency than with traditional payment methods.
The speed of transactions is beneficial to customers, merchants, and financial institutions alike. Customers can see their purchases in their banks or accounts immediately. They know if the transaction has been successful right away.
Merchants don’t need to wait as long to receive the money they should have had access to sooner. Banks can process transactions more quickly, allowing for additional revenue. Thus, generating opportunities through microtransactions and more.
Transaction speeds with cryptocurrency are much higher than traditional payment methods. Transaction times still vary depending on which currency you’re using.
Increased Liquidity
We are going to discuss liquidity problems and how cryptocurrency can help solve them.
Liquidity issues arise when there is a lack of money flowing through the economy. One example of this is a liquidity trap. It happens when interest rates get too low, and businesses can’t borrow enough to expand.
It leads to less spending on goods and services, which hurts the economy as a whole.
Cryptocurrency can get used to solve these problems by providing an alternate source of funding for businesses that have limited access to traditional bank loans. It is specifically due to poor credit scores or other financial issues that could cause concern for lenders.
Lower Transaction Costs
Lower transaction costs. If you have to get involved in a bank transfer, then you already know that the cost of transferring money to another person or entity can be exorbitant.
The cost is dependent on factors such as the amount of money transferred, whether it happens locally or internationally and the type of currency used. Additionally, various hidden charges make transactions more expensive in the long run than they should be.
Cryptocurrencies allow for cheaper and more efficient transactions due to their ability to bypass traditional institutions such as banks and big companies. These would otherwise increase the costs associated with transferring funds between people.
For instance, Visa charges around 1% per transaction, which amounts to $1 billion per year.
However, one crypto-based payment network known as Stellar was able to process over 1 million transactions in November 2017 for only $0.01. It means each of these transactions got processed for less than 0.0001$.
Lower transaction costs may lead to more people being able to transact. It is especially beneficial for those who got prevented from doing so by certain barriers. These can include poverty or geographical distance from where other parties reside.
Global Money Transfer
Let’s say you want to send money to a friend in another country, and let’s also say that cryptocurrency is your thing. You can just send a digital coin or two their way, and they might use it as payment or save it.
For example, you could send your friend some Bitcoin if they’re into that, or you could send them some Dogecoin if they have a really good sense of humor. It doesn’t matter where in the world they are. The transfer is just as easy as sending an email.
What does this mean for international commerce? For one thing, it opens up many new avenues of potential investment and revenue sources around the globe. It raises questions about how we think about money’s value outside our national borders.
e-Commerce and Other Markets
Cryptocurrency introduces new liquidity to e-commerce and other markets by facilitating global transactions. The ease of sending payments makes it possible for more direct transactions to occur, which generates more revenue.
More Efficient Payment Options
Digital money is a more efficient payment option for future generations. Digital economic transactions are typically more efficient than cash payments, credit cards, checks, bank transfers, wire transfers, and debit cards.
The majority of these payment methods require physical infrastructure to be built and maintained. Many of them also have high transaction fees due to the manual labor required at each stage of the process.
In contrast, digital transactions are generally faster and cheaper because they don’t rely on physical infrastructure or manual labor. They’re also easier to track and use data analytics on, so they’re often better for anti-fraud measures like identity verification.
Proof of Concept
Crypto has proven that people can use digital currencies as payment and buy/sell them on exchanges. Even if you don’t believe in crypto, it’s hard to argue that it has shown the world how to adopt it successfully.
A big part of what makes cryptocurrencies successful is their underlying blockchain technology. It is the idea behind a decentralized database where all transactions get recorded on a public ledger.
It is helping the cryptocurrency exchanges bring transparency and trust without relying on a central bank.
It is important for cryptocurrencies, but other markets could also benefit from blockchain technology. You can use any of the numerous exchange options available like OKX (brand) while shortlisting for your use.
General Economic Impact
In the financial world, there are many ways to get a return on your investment.
Some investments, however, are simple and practical. Maturing savings accounts in banks and savings bonds, for example. Others can be less tangible; stock market investments get usually based on future profits that speak to what a business will earn overtime.
Cryptocurrency is an entirely different type of investment. In cryptocurrency terminology, it means it’s not linked directly to the traditional financial system like stocks or bonds are.
As more people invest money into these networks and their associated tokens, the value of each token increases because it gets used as collateral for invested funds.
With this increased liquidity comes increased demand: more investors want to buy for their money to have a chance at greater returns than they would if they had simply put their money into gold or another traditional asset.