Financial Institutions: Adoption of Cryptocurrencies as a Method of Payment

Financial Institutions

The widespread adoption and use of cryptocurrencies as a payment method is dependent on acceptance by merchants and financial institutions alike. Specifically in the U.S., a lack of regulatory guidance has hindered adoption. While many financial institutions are forming alliances with technology companies to explore opportunities and efficiencies inherent in blockchain technologies, the adoption of crytocurrencies as a method of payment has largely been ignored.

A major hurdle for many financial institutions when considering cryptocurrencies as a form of payment stems from regulations requiring these organizations to identify their customers and be able to provide transparent transaction information. These two issues run counter to the design and implementation of distributed blockchain technologies which the most well-known cryptocurrencies are built upon. While third-party vendors are able to de-anonymize (to an extent) large portions of popular cryptocurrency blockchains, it is currently not feasible for financial institutions to accept cryptocurrencies in their current state as a form of transaction.

Additionally, due to limited adoption of cryptocurrencies as a form of payment in the U.S., financial institutions are unlikely to generate enough monetary gain through allowing transactions. While use of crytocurrencies as a payment method internationally, especially in countries which have introduced cryptocurrency related regulation and countries with an unstable central currency, is likely to increase in the near- to intermediate-term, the same is not true for the U.S. Traditional forms of payment to include credit card, debit card, ACH, and wires will remain the payment methods of choice for the foreseeable future.

Widespread Adoption

Widespread adoption of cryptocurrenices as a payment method in the U.S. will be greatly dependent on regulation. Without regulatory guidance, financial institutions and large corporations will be unlikely to accept cryptocurrencies as a form of payment. It is also likely, that once regulatory agencies issue guidance, many of the current popular cryptocurrencies will be unable to meet those standards in their current form. This will likely lead to major corporations and financial institutions developing their own forms of cyrptocurrencies on proprietary blockchains to conform to regulatory requirements.

However, this scenario runs counter to the original intention of distributed blockchain technologies. Cryptocurrencies of the future will likely be introduced to solve traditional payments problems of high fees, high transactional costs, fast settlements, and cross-boarder payments.

Cryptocurrenies of the future will greatly differ in features of the cryptocurrencies introduced over the past decade.