Insights 001: The imminent adoption of crypto as an everyday payment method
Some numbers indicate that we may be moving towards significant adoption of cryptocurrencies as a means of payment by the population. I present some insights and opportunities related to these data.
Brazil has already proven to be a country with a population open to new technologies. Since the early days of the internet, we can observe a lower resistance to the new when comparing the Brazilian population to the global population. Brazil quickly embraced the internet, and by the late '90s, it was already the 10th country with the most online users. Social networks, smartphones, and the use of messaging apps were also adopted rapidly and intensively by Brazilians.
It was to be expected that we would see a similar trend with cryptocurrencies. It is estimated that there are approximately 10 million Brazilians investing in crypto, placing Brazil in fifth place in the global ranking of crypto investors, trailing only behind India, the USA, Russia, and Nigeria according to Forbes. Furthermore, we hold the second place when it comes to owning NFTs.
This Brazilian characteristic could be crucial in the global adoption of cryptocurrencies as a means of payment. Brazil might even play a leadership role in showing the way through trial and error when embracing something so new and unprecedented.
The beginning of cryptocurrencies
In October 2008, the Bitcoin whitepaper was published. Since then, various functions have been attributed to it, such as being a hedge against inflation and even being called Gold 2.0 by its proponents.
Satoshi had in mind to create electronic money for online payments that would eliminate the need for intermediaries, thereby removing centralized institutions once and for all. He succeeded in this goal. However, with the growth of the network and the widespread adoption of this new technology, Bitcoin proved to be less scalable. For everyday payments, transaction times became a hindrance, in addition to the fees that, although relatively small, discouraged smaller-value purchases.
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.
- Satoshi Nakamoto - Bitcoin: A Peer-to-Peer Electronic Cash System
The most famous solution found for this problem is the Lightning Network, a technology that enables low-cost and extremely fast payments. Several other cryptocurrencies have emerged, and some also aim to be a means of everyday payment through blockchain.
Amidst this, stablecoins have also emerged. As the name suggests, these are cryptocurrencies with reduced volatility because their value is linked to some traditional market asset such as the dollar and gold. USDC is an excellent example of a cryptocurrency linked to the dollar. It is important to keep in mind that being a secure means of everyday payment is at the core of cryptocurrencies.
Is mass adoption imminent?
For many, perhaps talking about cryptocurrencies as a means of everyday payments still seems distant. But it is a fact that we are witnessing a significant increase in consumer interest in this matter. In a recent survey conducted by PYMNTS and BitPay, it showed that nearly a quarter of consumers have owned or currently own cryptocurrencies in the past 12 months. It's worth noting that this number doesn't necessarily represent consumers interested in using cryptocurrencies for everyday payments, as more than half of them purchased this type of asset for investment purposes.
Since we are talking about something new that requires significant responsibility, especially when considering self-custody of assets, many consumers are still hesitant to use certain services and products related to crypto. Being your own bank is both liberating and somewhat intimidating.
82% of merchants say that the removal of intermediaries in payment processing is a significant reason for accepting cryptocurrencies. However, there is another contrasting statistic. Over 93.5% of consumers who make payments with cryptocurrencies use digital wallets that have intermediaries, while only 6.5% use native crypto wallets.
In other words, the primary reason for using cryptocurrencies for merchants only makes sense for a small minority of cryptocurrency users.
Large companies have already realized that the number of consumers interested in cryptocurrencies as a means of payment is growing. In fact, the two main reasons fueling interest in accepting crypto in companies with revenues of 1 billion or more are the possibility of gaining new customers and removing intermediaries.
A combination of factors that can be an opportunity
The number of consumers who own cryptocurrencies is consistently growing. Large companies are interested in using crypto assets as a means of payment. The removal of intermediaries is important for businesses, while consumers are still learning to use tools that allow this removal. The signs are pointing in the same direction, from large companies to açai stands with QR codes for bitcoin payments.
Crypto projects, DAOs, and traditional companies that focus on creating easy and simple solutions allowing consumers to self-custody their cryptocurrencies while using them quickly and efficiently for day-to-day payments will stand out in the market in the coming years.
Combine all of this with a country that is fertile ground for sowing new technologies. I believe this is a significant opportunity for Brazilian companies, for businesses looking to invest in the country, as well as for professionals interested in this field. However, I want to emphasize a potential risk, which is not related to technology but to regulation. Despite various indications pointing towards mass adoption of crypto by consumers and merchants, we still face the risk of negative regulation that could be a stumbling block on this promising path.
In general, new technologies often bypass regulations and resistance. I believe it will not be any different with cryptocurrency payments, and soon scenes like people selling real estate using USDC, everyday purchases with Bitcoin and other cryptos will become as common as using PIX. But what is your opinion?