Digital currencies have the capability to develop payment systems and financial services and represent a new understanding around money exchange and transactional security.
For instance, since 2019, the United States – one of the world’s financial leaders – has undertaken research and taken steps to integrate cryptocurrencies into its internal payment system. The US Congress proposed the ‘Crypto-Currency Act of 2020’ for consideration at the end of 2019.
This examined the process for recognising, licensing and registering digital currencies as a method of payment, as well as establishing a list of state agencies in charge of the new currency type’s regulation and oversight.
Digital currencies have the potential to replace fiat money as a new widely recognised form of payment. In this instance, the country with the best-performing cryptocurrency system can gain a considerable advantage in the competition for financial ‘weapons’ and financial leadership.
The integrity of data flow in the network of cryptocurrency systems has the ability to alleviate, to some degree or another, the issues of corruption and the underground industries that exist in every country.
Non-physical money is growing at a faster rate than cash. This is due to the simplicity of modern payment methods and the current state of technological advancement, which allows for contactless transactions at the terminal as well as online transactions via the internet.
Cryptocurrencies have the potential to act as a tool to build new financial systems in countries with a high percentage of unbanked people and an unstable political situation due to their key advantages such as no third-party interruptions, user anonymity, low transaction fees and fast cross-border transaction processing.
People will be able to participate in global commercial marketplaces, resulting in economic growth. When citizens in a country confront political, social, and/or financial upheaval, they may resort to cryptocurrencies in greater numbers.
The blockchain technology that underpins cryptocurrencies allows for a variety of technological advancements, including faster and more secure payments, multiple trading on distributed exchanges in financial markets, and the verification of sensitive data.
Since cryptocurrency money is transferred without the involvement of a trusted third party, such as from a bank, transaction fees are cheaper than those charged by credit cards and money transfers through an intermediary. Transactions in a cryptocurrency’s payment platform do not require a trusted third party because the blockchain record is monitored and updated in a collective consensus-based method. It entirely automates the transaction verification process.
According to the 2017 Credit Card Fee Survey, credit cards charge an average of six fees, with at least 3% of the transferred value, or $5 to $10, being charged. Transaction fees for Bitcoin on Bitcoin Circuit, an online platform for cryptocurrency transactions, for example, are roughly 1% of the amount sent, which is significantly less.
Furthermore, transactions involving cryptocurrencies can be completed in seconds, regardless of the geographical distance between the parties involved. Money transfers via banks, on the other hand, typically take at least one day for domestic transactions and with international payments taking two or more days.
Virtual currencies were created with the intention of avoiding centralised control and reducing the amount of trust that participants must invest in a third party. Governments, central banks, and other third parties have no influence over their supply and payment networks.
Political and economic uncertainties in a country will have no effect on a cryptocurrency, and the possibility for corruption that comes with centralising information will be reduced as a result. Furthermore, cryptocurrencies address a major flaw in the existing financial system: inflation. The circulation of money cannot be changed by any government or central bank to produce new money because of its decentralised nature and restricted supply of new units.