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Coronavirus Serves as a Reminder: Today’s Payments System Is Broken

4 mins
Updated by Ana Alexandre

In Brief

  • Limitations in the banking system created bottlenecks.
  • Providing individual savers with greater access to cryptocurrency would allow individuals to decide the best place for their money.
  • The first country to bring cryptocurrency to retail users at a significant scale will reap massive benefits by reducing bureaucracy.
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The coronavirus, once novel, has been the story of the year. One subplot to the pandemic horror show has been the frailties of the legacy banking system laid exposed.

Several governments issued stimulus packages directly to their citizens in order to keep consumer spending up and the economy ticking over. Limitations in the banking system created bottlenecks. Technical difficulties caused delays in getting people necessary cash. Weeks then months went by. These delays harmed citizens and jeopardized small businesses, which in turn increased the likelihood of defaults on loans. 

This problem was not just political, medical and economic, but also technical in nature. The result of terminal payments rails and decades of unequal access to financial services.

Consider what would have happened if a government had leveraged cryptocurrency in order to distribute money quickly and efficiently. 

Payments could have been linked to existing government data on taxpayers. A government body could have created individual wallets for distribution of the payments, removing slow moving banks and financial institutions from the equation. The elderly or other high risk people would not have needed to leave their homes to cash checks. The money would be delivered instantly and safely. 

Distributing passwords and confirming identities would be a security challenge, but by drastically reducing the interface with banks this would be an eminently solvable problem.

Achieving widespread crypto use

Another benefit of this approach would have been to introduce a wider market to the benefits of cryptocurrency, including the greater autonomy it provides when it comes to seeking stable opportunities to save.

While cryptocurrency is castigated for its volatility, the economic repercussions of the pandemic have also rattled fiat currency markets. Some governments, including those of the US and the UK, responded to the global recession brought on by the virus by printing money in order to spend their way out of it, causing inflation and fluctuations in currency value.

Providing individual savers with greater access to cryptocurrency would allow individuals to decide the best place for their money, while setting levels of volatility and risk that suits their needs, rather than being at the whim of their central bank.

Moving from an economy driven by fiat currency to one with more diverse types of money is a huge undertaking, but the widespread shortcomings that became evident during 2020 show why it is necessary.

The government policy and regulation needed to facilitate such a move should respect the fact that cryptocurrency is and should remain decentralized, while giving traditional institutions such as banks and governments the ability to act as prominent nodes in the new financial network, rather than gatekeepers. 

Retail users of cryptocurrency will be attracted to the benefits of decentralization, but will also require some regulation to offer some protection against the negative behaviour associated with cryptocurrency.

Given one study found over 80% of initial coin offerings turned out to be scams, this would be reasonable and prudent. There is an opportunity for regulation to spur growth and innovation rather than dampen it, particularly as the blockchain and crypto industries mature and move away from bad actors. 

Getting regulation right

When the US passed unified regulation of cryptocurrency across 49 states, in September 2020, it represented a positive step in this direction. This is an example of consistent regulation being preferable to excessive decentralization, as it reassures new users and allows for institutions to offer clear and scalable guidance on buying and exchanging cryptocurrency.

SEC Chairman Jay Clayton recently stated that bitcoin is “a source of value that is driven by inefficiencies in our current payment mechanisms.” This is an endorsement of sorts, showing that cryptocurrency has the potential to improve existing mechanisms. But he also noted that as bitcoin grows, the need for regulation will increase.

This regulation should be progressive and based on changeable principles rather than rigid requirements. Technology evolves quickly, especially in nascent sectors like cryptocurrency, so regulation should be flexible and adaptable. This provides reassurance and stability to users without putting a brake on innovation. 

We have to be realistic about the adoption curve of cryptocurrency, at a time when we are still moving out of the early adopter phase. It is always worth remembering that it took about 50 years for credit cards to become ubiquitous.

But we should also recognize that the pandemic has been an accelerant on the uptake of financial technologies, with IBM predicting e-commerce uptake has leapt forward five years, and RetailDive noting a considerable increase in retailers accepting contactless payments.

The use cases that early crypto evangelists have always referenced are playing out before our eyes in the US, Europe, in Asia, and around the globe, so the conditions are ideal to turn ideology into practical progress.

The first country to bring cryptocurrency to retail users at a significant scale will reap massive benefits by reducing bureaucracy, increasing financial independence, and streamlining systems of payment across the economy.

That’s why we need to work diligently to ensure that the US will have the foresight to adopt and activate strong, new policies toward contactless digital payments and cryptocurrency that will make them the global leader in the new world of financial interaction.

NOTE: The views expressed here are those of the author’s and do not necessarily represent or reflect the views of BeInCrypto.


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