Cryptocurrency is undoubtedly one of the most prominent asset classes of the 21st century. While there was much skepticism when it first emerged, it has defied the odds. Not only is it widely used by investors looking to make a profit, but it is also used by businesses in all sorts of ways. Given the billions of dollars being spent on these digital assets, some wonder if they are on track to displace traditional payment and transaction systems. But is this the case? We explore in this article:
How Crypto is Used in Business
Since it burst onto the scene over a decade ago, cryptocurrency has found myriad applications within business.
Accepting Payments
It is no secret that many consumers love to buy crypto coins. Thanks to market movements, a major draw for them tends to be the chance to trade them for a profit from trading their tokens. This is why, as Alan Draper says, many seek out new crypto coins to buy in hopes of them being the next big thing. But beyond investment, cryptos can also be spent for regular purchases.
The number of businesses that take crypto for their goods and services has only grown significantly over the years and includes different niches. You have food establishments like KFC, tech companies like Microsoft, and much more. Many smaller businesses also now accept cryptocurrency alongside or even instead of fiat currency.
Making Payments
Besides taking payments from customers, many businesses also spend cryptocurrency for various purposes. Businesses needing software, for example, could turn to a corporation like Microsoft and pay with cryptocurrency. There are also options to pay rent, utilities, and other vital expenses with digital assets; many are taking advantage of this. So far, we’ve seen a cyclical effect of sorts: As more businesses accept crypto, other businesses patronize them and pay with cryptocurrency as well.
Once again, businesses can choose to pay for goods and services with cryptocurrency alongside or instead of fiat currency.
Taxes
Believe it or not, avenues to pay taxes with cryptocurrency are fast on the rise around the world. In the US, for example, Ohio has made efforts to reinstate the right to pay taxes using digital assets. If this goes through, businesses that accept crypto can pay their taxes with the same assets. It is also worth noting that governments around the world are putting more deliberate effort into taxing crypto transactions. As stricter laws and heavier enforcement come into the picture, we can expect more businesses to pay their taxes this way.
Investments
At the end of the day, businesses exist to make a profit, and crypto assets have shown that they are one of the best ways to do this. Businesses these days, even those with nothing to do with the digital asset space, hold a bigger chunk of their funds in cryptocurrency. This is both in a bid to hedge inflation and a strategy to make more money if the value of the assets goes up. Interestingly, many state pensions have gotten in on the action themselves, with Florida and New Jersey putting hundreds of millions into cryptocurrency. If that is not a sign of its profitability, nothing is.
Can Crypto Displace Traditional Methods?
So, we’ve established that crypto is being used within businesses at an increasing rate. But is this enough to displace traditional methods? There are several factors to consider.
Level of Use
Cryptocurrency is widely used, with the number of active crypto wallets being 400 million as of 2024. However, we must consider that fiat currency is much more widely used. For every business that accepts crypto, millions accept fiat currency exclusively. So, even a business that takes crypto will have to convert it into fiat if it will keep its operations running smoothly. The fact that businesses even take crypto is noteworthy because it is so far from the norm. So, while crypto is used much more today than a decade ago, it still trails behind fiat currency.
Government Acceptance
A major challenge that the crypto sector faces when it comes to use in business (and in general) is acceptance from the government. For widespread use of crypto among businesses, they will need to be able to pay taxes, fines, and other expenses to the government. And while a handful of places allow tax and other bureaucratic payments via crypto, it is not yet widespread enough to displace crypto. We must also consider the fact that crypto is banned in several countries, which puts a major cap on its growth potential.
Volatility
Another reason why crypto struggles to displace fiat currency for business transactions is its notorious volatility. One thing that both business operators and customers need for a healthy commercial environment is price stability. Imagine an item at the store costs $1 one day and $3 the next day, with no concrete structure to price changes. This is the sort of landscape that consumers are buying with the crypto face. Because the asset class sees dramatic price swings, many have to convert their funds to fiat before they make or process payment or just use fiat instead. While crypto use is growing and resources are emerging to combat this, price volatility is still a major factor.
Existing Structures for Acceptance
It can be quite complicated for businesses to accept and use crypto because fewer structures facilitate this than fiat currency. You can be sure that virtually every business you encounter accepts fiat currency, whether that’s in cash, by card, through payment processors like PayPal, and much more. However, accepting crypto will require setting up accounts with several payment providers, and many simply decide that it is not worth the hassle. And until this issue is resolved, crypto use will continue to stall.
Looking to the Future
From all we’ve outlined, crypto is in an interesting space in the business world. On the one hand, more people are using crypto for business transactions than ever before. This includes sending and receiving payments, investing, and much more. But even with all of these, crypto is still far from dethroning fiat currency as the dominant currency in the business world.
This can mostly be attributed to its volatility, unclear regulatory landscape, and relatively low use. However, all these issues are slowly being addressed within and outside of the industry. Stablecoins are commonly used to escape volatility, pro-crypto legislation is being pushed worldwide, and crypto adoption rates are higher than ever.
If these factors continue to be resolved and addressed, the use of crypto in the business world will only increase with time. Also, its prominence relative to the use of fiat currency will increase. No one can say for sure, but it is not impossible for crypto to compete with and maybe even kill off the traditional methods we use today.
Photo by Rodion Kutsaiev on Unsplash
