Post by anenro on Jul 3, 2020 0:25:16 GMT 4
Bitcoin and stablecoin: What's the difference?
Stablecoin is very different from highly volatile currencies like
bitcoin and ethereum. While these digital coins might be attractive to
ultra-aggressive investors, they are not a great way to pay your bills
because they're prone to wild swings in value and high transaction
costs. Not many businesses want to be paid in a currency that could
plummet in value the very next hour.
Stablecoins are stable-value coins, cryptocurrencies designed to
minimize price volatility by pinning value to currencies like the U.S.
dollar or to exchange-traded commodities like gold.
Even if cryptocurrencies like bitcoin and ethereum ultimately crash
and burn, I believe stablecoins -- and their underlying blockchain
technology -- are here to stay and will play a larger role in payment
transactions in time.
Think of it this way: Even after the dot-com crash circa 2000 in which
hundreds of online businesses went bankrupt, the foundational internet
technologies developed during that time -- including web services,
e-commerce applications and cloud software -- survived and thrived.
Similarly, blockchain will be a persistent technology whether volatile
cryptocurrencies implode or not.
Blockchain and stablecoins will flourish because they fundamentally
improve the way financial transactions get done. Take, for example,
international payments. Making international payments today requires
navigation through a complex maze of legacy payment systems, like ACH,
wire transfer and Swift. These involve currency conversion,
verification and a lot of other friction, which result in higher costs
and longer delays. However, today we don't have much choice; these
legacy payment rails power the majority of international payments.
Is stablecoin trustworthy?
Stablecoins are a better way. When customers use a stablecoin, they
can bypass the traditional hurdles of transferring funds and dealing
with local currency conversions. They get real-time payments, better
exchange rates and lower transaction costs. That's why leading banks
like JP Morgan and Wells Fargo have launched their own stablecoins --
to make it easier for customers to conduct cross-border transactions
and to ease the foreign exchange burden. Even the government of China
is considering its own coin. In many ways, China has gone more digital
with payments through Alipay and WeChat.
But are stable-value coins trustworthy? Stablecoins are backed by real
monetary assets, such as fiat currencies held in a bank. Stable-value
coins are also audited. As a result, their value is more real than
other forms of crypto like bitcoins. Take JP Morgan's recently
introduced JPM Coin, a stablecoin tied to the U.S. dollar and backed
by assets. Essentially, if you trust JP Morgan -- a financial titan
with a 2018 operating income of $764 billion -- you can trust JPM
Coin. And if you trust JPM Coin, you can settle payments instantly and
transparently at any time of the day or night.
Detractors might point out Facebook and its Libra stablecoin system.
True, that project has not gone well so far. In fact, that's probably
an understatement. But Libra's troubles have less to do with the
usefulness of stablecoins and more to do with the fact that Facebook
sidestepped compliance and government regulators when launching.
Payment chains
The reality is stable-value coins offer tremendous promise, and not
just for payments but for managing the entire vendor-to-vendor
relationship. Let's say your client runs a high-end coffeehouse in San
Francisco and she buys beans from a farmer in Colombia. With
blockchain, she can pay the farmer instantaneously in stablecoin when
the coffee beans ship. The coin maintains its value and is easily
convertible to Colombian pesos.
The transaction is recorded on the blockchain in black and white, so
there can be no dispute. What's more, contracts between your client
and farmers can be programmed into the underlying blockchain as smart
contracts. Once a smart contract is in place, all the details --
including things like purchase orders and payment terms -- live on the
blockchain.
This kind of smart contract reduces friction and accelerates payments.
When the smart contract is executed, payments are automatically
deducted from the coffee shop owner's digital wallet and funds are
moved into the farmer's digital wallet, so payment happens seamlessly.
Terms can also be programmed into a smart contract. For example, bills
paid within 10 days could get a 2 percent discount.
The Wild West vs. regulation
In my mind, stablecoins are the future, even if the market is
currently experiencing a degree of Wild West uncertainty. Yes, the
Wild West was chaotic during its early days with every bank offering
its own currency, resulting in many kinds of banknotes floating
around. But ultimately the government got into the business of issuing
currency, and it all worked out pretty well.
Could the same happen with stablecoins? As more organizations launch
them, like JP Morgan and Wells Fargo, government interest will
continue to develop. Eventually, there could be a government entity
that either regulates or issues stablecoins in an effort to control
the market or add transparency, much like the government oversees the
Federal Reserve and wire transfer system or Nacha oversees the ACH
Network. We may even see more governments issue their own stablecoins.
Either way, when conducting global commerce becomes faster, cheaper
and more efficient, everyone stands to benefit.
For accountants, awareness of the evolution of the payment landscape
is a critical component of success. Right now, not many clients are
asking for cryptocurrencies or stablecoins. But as convenience
surpasses trepidation, more companies will begin to explore paying
with stablecoins.
Remember: As the world gets more connected and supply chains become
more global, there is a growing need to pay in different currencies.
Anything that can reduce transaction times and foreign exchange fees
will accelerate the pace of commerce. When you make and receive
payments in stablecoins, you eliminate many of the current obstacles
in the global commerce chain.
Stablecoin is very different from highly volatile currencies like
bitcoin and ethereum. While these digital coins might be attractive to
ultra-aggressive investors, they are not a great way to pay your bills
because they're prone to wild swings in value and high transaction
costs. Not many businesses want to be paid in a currency that could
plummet in value the very next hour.
Stablecoins are stable-value coins, cryptocurrencies designed to
minimize price volatility by pinning value to currencies like the U.S.
dollar or to exchange-traded commodities like gold.
Even if cryptocurrencies like bitcoin and ethereum ultimately crash
and burn, I believe stablecoins -- and their underlying blockchain
technology -- are here to stay and will play a larger role in payment
transactions in time.
Think of it this way: Even after the dot-com crash circa 2000 in which
hundreds of online businesses went bankrupt, the foundational internet
technologies developed during that time -- including web services,
e-commerce applications and cloud software -- survived and thrived.
Similarly, blockchain will be a persistent technology whether volatile
cryptocurrencies implode or not.
Blockchain and stablecoins will flourish because they fundamentally
improve the way financial transactions get done. Take, for example,
international payments. Making international payments today requires
navigation through a complex maze of legacy payment systems, like ACH,
wire transfer and Swift. These involve currency conversion,
verification and a lot of other friction, which result in higher costs
and longer delays. However, today we don't have much choice; these
legacy payment rails power the majority of international payments.
Is stablecoin trustworthy?
Stablecoins are a better way. When customers use a stablecoin, they
can bypass the traditional hurdles of transferring funds and dealing
with local currency conversions. They get real-time payments, better
exchange rates and lower transaction costs. That's why leading banks
like JP Morgan and Wells Fargo have launched their own stablecoins --
to make it easier for customers to conduct cross-border transactions
and to ease the foreign exchange burden. Even the government of China
is considering its own coin. In many ways, China has gone more digital
with payments through Alipay and WeChat.
But are stable-value coins trustworthy? Stablecoins are backed by real
monetary assets, such as fiat currencies held in a bank. Stable-value
coins are also audited. As a result, their value is more real than
other forms of crypto like bitcoins. Take JP Morgan's recently
introduced JPM Coin, a stablecoin tied to the U.S. dollar and backed
by assets. Essentially, if you trust JP Morgan -- a financial titan
with a 2018 operating income of $764 billion -- you can trust JPM
Coin. And if you trust JPM Coin, you can settle payments instantly and
transparently at any time of the day or night.
Detractors might point out Facebook and its Libra stablecoin system.
True, that project has not gone well so far. In fact, that's probably
an understatement. But Libra's troubles have less to do with the
usefulness of stablecoins and more to do with the fact that Facebook
sidestepped compliance and government regulators when launching.
Payment chains
The reality is stable-value coins offer tremendous promise, and not
just for payments but for managing the entire vendor-to-vendor
relationship. Let's say your client runs a high-end coffeehouse in San
Francisco and she buys beans from a farmer in Colombia. With
blockchain, she can pay the farmer instantaneously in stablecoin when
the coffee beans ship. The coin maintains its value and is easily
convertible to Colombian pesos.
The transaction is recorded on the blockchain in black and white, so
there can be no dispute. What's more, contracts between your client
and farmers can be programmed into the underlying blockchain as smart
contracts. Once a smart contract is in place, all the details --
including things like purchase orders and payment terms -- live on the
blockchain.
This kind of smart contract reduces friction and accelerates payments.
When the smart contract is executed, payments are automatically
deducted from the coffee shop owner's digital wallet and funds are
moved into the farmer's digital wallet, so payment happens seamlessly.
Terms can also be programmed into a smart contract. For example, bills
paid within 10 days could get a 2 percent discount.
The Wild West vs. regulation
In my mind, stablecoins are the future, even if the market is
currently experiencing a degree of Wild West uncertainty. Yes, the
Wild West was chaotic during its early days with every bank offering
its own currency, resulting in many kinds of banknotes floating
around. But ultimately the government got into the business of issuing
currency, and it all worked out pretty well.
Could the same happen with stablecoins? As more organizations launch
them, like JP Morgan and Wells Fargo, government interest will
continue to develop. Eventually, there could be a government entity
that either regulates or issues stablecoins in an effort to control
the market or add transparency, much like the government oversees the
Federal Reserve and wire transfer system or Nacha oversees the ACH
Network. We may even see more governments issue their own stablecoins.
Either way, when conducting global commerce becomes faster, cheaper
and more efficient, everyone stands to benefit.
For accountants, awareness of the evolution of the payment landscape
is a critical component of success. Right now, not many clients are
asking for cryptocurrencies or stablecoins. But as convenience
surpasses trepidation, more companies will begin to explore paying
with stablecoins.
Remember: As the world gets more connected and supply chains become
more global, there is a growing need to pay in different currencies.
Anything that can reduce transaction times and foreign exchange fees
will accelerate the pace of commerce. When you make and receive
payments in stablecoins, you eliminate many of the current obstacles
in the global commerce chain.