There are certain hidden costs associated with making payments via cryptocurrencies
Cryptocurrency has grown exponentially in popularity in recent years. But his journey in terms of growth has been a roller coaster ride. Sometimes cryptocurrencies like Bitcoin and Ethereum have shown an incredible appetite for success, but there have been times when their drive for growth has been lacking. Extreme volatility and sudden price swings that happen at regular intervals take the lust out of the emerging sector. These are just some of the reasons that make cryptocurrencies less capable of becoming a standard payment mode. However, the underlying blockchain technology is promising.
While companies have started accepting payments in some cryptocurrencies in some countries, the recent market crash has prompted them to reassess their decision. Take another example: El Salvador. The Central American country legalized Bitcoin in September last year and started building a cryptocurrency war chest. The country’s president, Nayib Bukele, promised that Bitcoin would help rebuild the economy. But his government has reportedly lost about $40 million in the market crash since he bought the Bitcoins. Already, financial experts are concerned about Salvador’s Bitcoin gamble.
There are other important (practical) reasons why Bitcoin or other cryptocurrencies cannot become a default payment option, at least in the near future, without a technological upgrade. Bitcoin transactions take about 10-15 minutes to process. The technology is built in such a way that when a crypto user makes a transaction, it must be validated by miners. This process slows down the real-time charm we otherwise get with transactions through the current banking system. Another factor is the fee that miners charge for their service to be paid by users. While this may not be significant, it is still more than what we currently pay to our banks.
In addition, extreme volatility makes it less certain and reliable. If you have Bitcoins worth Rs 10 lakh, you can buy things for that amount today. But there is no assurance that Bitcoin’s value will remain stable; it can go either way by a huge margin.
Despite these shortcomings, the underlying blockchain technology is inspiring and there is a real possibility that it can be improved in the future to meet the challenges.
