The inefficiencies of fiat
Fiat money has value only if the government sustains it, or if two parties to a transaction agree on its value. Governments used to mint coins out of a desirable physical product, such as gold or silver, or create paper money that could be redeemed for a certain amount of a valuable physical commodity. Fiat money is non-transferable and non-redeemable.
Because fiat money is not linked to actual reserves such as a national stockpile of gold or silver, it is vulnerable to inflation and, in the case of hyperinflation (think Venezuela), to becoming worthless. When individuals lose faith in a country's currency, the currency loses its value. The essential draw of cryptocurrencies for numerous clients, and undoubtedly one of the central precepts of cryptocurrencies more by and large, is independence.
Unless a client intentionally distributes his cryptocurrency address, his buys are never related with his individual personality, much like cash-only buys, and cannot effectively be followed back to him. If you work in one country and want to send part of your salary back to your family in another country, you might have to pay a £25 flat fee for a wire transfer, and additional fees adding up to 7%. Your bank gets a cut, the receiving bank gets a cut, and you’re charged exchange rate fees. Your family’s bank might not even register the transaction until a week later.
Facilitating payments is highly profitable for banks, providing them with little incentive to lower fees. International payments are painful because no single global network or service exists for all banks’ participation that enables real-time funds settlement.
While the Society for Worldwide Interbank Financial Telecommunication (SWIFT) protocol is far-reaching, it is a messaging service and not a true banking network. A bank in one region can send a message to a bank in another with SWIFT, but they must have a bilateral arrangement or rely on other banks that have the relationships. SWIFT unquestionably improved on the lack of international coordination. However, its structure remains inefficient and convoluted, causing long settlement cycles. Most banks' post-execution technology platforms are increasingly outdated. They also typically prove difficult and expensive to change.
These platforms often comprise multiple interoperating systems including middle office, clearing and settlement, books and records, risk systems for securities processing, payment systems and general ledger processing. As a result, banks must undergo high-risk, expensive, multiyear projects to elevate their processing platforms to modern standards.
Cryptocurrency transactions take 10 minutes on average to settle, although this can lengthen to hours or even days in extreme cases. That’s still not perfect, but it represents a leg up from the average 3-7 day processing time for bank transfers. And due to their decentralized and complex nature, crypto-based transactions are difficult for governments and regulatory bodies to control, observe, and shut down. BitPesa is also widely used for remittances sent throughout sub-Saharan Africa, the most expensive region in the world for sending money. Crypto payments platforms such as BitPesa have led to a reduction of over 90% in transfer fees in the region.
Blockchain companies are also focusing on enabling businesses to be able to accept cryptocurrencies as payment. For example, BitPay, a payment service provider that helps merchants accept and store bitcoin payments, has several integrations with e-commerce platforms like Shopify and WooCommerce. Cryptocurrency users are not subject to the traditional banking fees associated with fiat currencies.
The transaction fees charged by cryptocurrency transactions would be less compared to the traditional financial system. It also makes it a lot easier for international businesspeople to transfer funds globally without third party authorisations necessary, which means it would be quick. Easier access for the population that do not hold traditional banking facilities if they have a mobile phone or a computer with internet access.
DISCLOSURE - This is an opinion piece and not financial advice. Please do your own research before investing into any projects. -
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