According to a study done in the UK, a 35 percent drop in cash transactions was seen in the year 2020. While another study done in 2019 showed a figure of 13.7 million people leading a “cashless life.” Global food chains like Its, Prezzo, etc., Côte Brasserie, and many more, are not accepting cash payments and are on a growing list of restaurants that have gone card-only. Even companies like Ikea are gradually moving towards cashless payment in some countries (like the UK).
The Increase in Digital Payments
All of the facts and figures stated above give one crystal clear picture: the inevitable rise of digital payments. But why was there a need for digital payments in the first place? A payment that was Convenient, easy, fast, safe, and reduced the costs of printing and handling cash gave birth to digital payment methods like credit debit cards, PayPal, Square, Cash App, Venmo, etc.
Following this, payment methods like square bridged the gap where some small merchants weren’t properly equipped to take cards by allowing any small contractor to easily accept payments and signatures on their phone. But there was one thing common in all of these payment methods, and that was that they were controlled by a centralized system. This means that banks or central authorities-maintained records and processed transactions.
Comparison of Transaction Processing
Let’s try to understand this procedure with the help of a comparison with the traditional centralized system. Whenever you buy something online, a transaction takes place. The bank and the platform are notified about it so that they can store the necessary information about the transaction.
How Cryptocurrency Processes Transactions?
- When it comes to cryptocurrency, the block is notified about the transaction.
- Next verification is done by the E-commerce store and the bank when you make a purchase.
- Since cryptocurrency doesn’t have a centralized entity, a consensus method is used to verify payment. The success of the consensus technique depends on peer engagement.
- Once the payment is verified, it is recorded in the ledgers or blocked in the case of cryptocurrency.
- Lastly, each block gets a unique hash value. A hashing algorithm takes an infinite number of bits (aka the data of your transactions), and performs calculations on them.
- Later on, it outputs a fixed number of bits called a hash. In other words, you don’t have to maintain track of the input data, which may be a lot, but only the hash instead.
Cryptocurrency Adaptability
From an individual perspective, cryptocurrencies are an easy way to escape capital control; however, they are also a natural fit for money laundering and tax evasion. Moreover, the extreme price volatility of cryptocurrencies like Bitcoin, with its price at the mercy of speculators and social media influencers, raises an argument against the use of cryptocurrencies. These factors are the major reasons why cryptocurrencies are banned in some countries.
On the other hand, some countries like El Salvador legalized Bitcoin for receiving remittances and reported savings of 400 million dollars on fees for money transfer services such as Western Union. While Price water house Cooper (PwC) reported that some 60 governments are currently developing their own digital currencies using blockchain technology, they are heavily centralized, unlike crypto.
Read More: Top 4 Crypto Wallets with High Returns for Investors
Conclusion
Just like we had the technology to produce electric vehicles since the 1980s but didn’t have the industry acceptance for a change in the system or infrastructure until Tesla disrupted, causing sales of new gas-powered vehicles to fall, making the big players aware of the necessary change. Similarly, there may need to be a similar event for cryptocurrency. But one thing is clear it’s coming. It’s inevitable, just like electric vehicles.
