Trends in Cross-Currency Settlement: Why Merchants Should Leverage Cryptocurrency Now

News, Opinion | May 12, 2021 By:

On November 1, 2008, the idea of an electronic peer-to-peer (P2P) currency system with a network structure in which all participants are equal was presented on a mailing list about cryptography. This novel concept was the first stepping stone to today’s hottest financial vehicle: cryptocurrency.

Currently, retail cryptocurrency is used to finance high-end luxury goods such as boats, houses, cars, jewelry, and expensive electronics, but more companies such as Tesla, Visa, and Paypal are  leveraging cryptocurrency as an official means of payment. Innovative companies such as Sequoia Holdings are also realizing the shift in the market and elected to pay their staff with cryptocurrency.

In the very near future, point of sale (POS) providers will enable real-time settlement and cryptocurrency will be transformed into a scalable form of payment for everyday merchants, such as corner shops, cafes, and local convenience stores. For them, expanding cryptocurrency settlement opportunities creates great financial investment flexibility.

Growing the opportunity to invest in cryptocurrency by scaling this form of payment in society allows an entirely new form of autonomy for users, opening up digital payment to the underbanked and unbanked communities who have been excluded from traditional banking institutions. 

Here’s how individuals and merchants are going to benefit from investing in the cryptocurrency ecosystem and what trends merchants need to look out for.

This is how cross-currency settlement works

As cryptocurrencies experienced extreme volatility and doubt during its early years, 

too many of us hold on to the old view of cryptocurrency being a high-risk option. Furthermore, many of us don’t know the advantages digital currency has as a payment option for both customers, and merchants. 

This is why it is important to understand how cryptocurrency settlement works and how small merchants can make use of it in the future.

If you, as a customer enter a store, you will encounter the price of the goods or service based on the fiat currency value, such as USD. If you then decide to pay in cryptocurrency at checkout, the currency-settlement process starts. When it comes to a purchase, the exchange or processor underwriting the merchant sets a dynamic spot price based on the market for the equivalent value in the supported cryptocurrency of your choice. If you are willing to settle the deal at the given spot rate, you pay for the item in cryptocurrency using simply your e-wallet.

Currently, cryptocurrency payment systems allow merchants to choose between two options. As a merchant you can either accept the cryptocurrency and store it in your e-wallet or use a crypto-processor, based on Blockchain technology, who does the traditional underwriting and settles to the merchant in fiat currency. All of this happens in real-time. 

The very same financial exchanges happen every day with cross-border overseas settlements. For instance, if you want to exchange USD to Ghana Cedi, you get a spot rate. With traditional currency markets, settlement takes several days or weeks. To our great advantage, with cryptocurrency, everything happens in real-time or near real-time. 

With this knowledge, merchants can assess the market and take advantage of either settling to fiat or holding on to different cryptocurrencies. Their sales give them immediate opportunities to invest and participate in the cryptocurrency markets. Merchants trading on regulated markets, having crypto-cash flows enables you to buy and sell your currency flows in the same way you would do with stock. 

As cryptocurrency payments are evolving, these are the trends merchants should watch out for.

Real-time settlement improving the customer experience

Starting in 2015, the lightning network was the first Bitcoin real-time crypto-processing network, allowing people real-time settlement for P2P transactions with Bitcoin. Before lightning, people had to wait 10-15 minutes to make sure they got their money. With the evolution of lightning, Bitcoin is ready for real-time transactions within seconds, serviced by participating payment network developers.

If merchants decide to integrate crypto-currency settlement into their checkout options, they can improve the experience of customers and guarantee enhanced usability, fast order processing, and advanced safety. POS providers make sure that the person who owns that device and wallet is the person making that transaction at the particular merchant location and that the transaction is verified. Merchants will need to pay the infrastructure costs for processing those transactions and enable e-wallet payments for other types of payments as well.

As more merchants start to offer cryptocurrency payment options, demand from customers will increase in turn. If people can easily pay with whatever currency they want, it will influence them towards merchants stores that have it available. So, by being an early adopter, merchants won’t only receive new investment opportunities but they can build a competitive edge against others as well.

A dispute settlement process to enhance merchants integrity

At the moment, processors of cryptocurrency are looking for a consensual dispute resolution process. The current scheme proposed aligns with the vision of cryptocurrency to have an equal, fair and autonomous payment process. 

It works like this: If you order from a merchant and you want to give the item back but the merchant refuses to return your funds you can initiate a dispute. By opening the dispute for discussion, you will need the consensus of other customers and users on the platform voting whether you get your money back. Other customers can be rewarded with the smallest unit of Bitcoin currency, Satoshis (SATs), or fractions of a Bitcoin for their participation in the dispute process. 

This is a way of decentralizing the underwriting process and decentralizing dispute systems, which empowers individuals and communities to participate in how the rules of payment and refunds are written. It also leads to higher integrity on the merchant side. Merchants are disincentivized to sell fraudulent goods or misrepresent services because they will lose more than the value of the goods or services provided.

How can crypto help us gain financial autonomy?

As cryptocurrency payments start to move away from just assets and into actual currency it creates a level of trust which in turn reduces the currency’s price volatility. Frequent exchanges and daily use of cryptocurrencies will help to foster stability. 

By becoming a stable currency alongside the aforementioned trends on customer experience and dispute settlement, Bitcoin is the perfect tool for merchants and customers that wish to gain more autonomy in their purchasing processes.

The most important aspect of using cryptocurrency is the freedom and the values it provides us with. By nature, cryptocurrency is unbiased and completely free of discrimination. We all know and we all have experienced how privileged the traditional means of creating wealth and generating long-term rents have been structured. 

The majority of wealth in every country is owned by a small group of individuals and its distribution is under the control of the nation-state and the financial institutions. If you are unlucky enough to be born into a disenfranchised position in your country, your personal development is stifled with having limited means to pay for education and investing in your own future. In contrast, because cryptocurrency is free of bias and borderless, it is a currency we can trust to empower us, not discriminate against us. 

Final thoughts

The world needs all merchants to enable people to spend their cryptocurrency on essential goods in their stores. That’s when the real excitement comes: cryptocurrency as a viable payment option among small merchants, individual purchases, the cornerstone coffee place, the pop-up, and neighborhood convenience store.

By investing in this payment solution now we energize the underlying dynamics that will make cryptocurrency available to everyone, everywhere, and always.