The rise of cryptocurrencies as legitimate virtual currency has created a viable alternative to fiat currency. Traditionally, countries held their own currencies and offered exchange rates if you wanted to pursue international trade and financial transactions.
The problem is that international financial transactions are often difficult to process, especially between two countries that don’t have clear exchange rates. Fortunately, cryptocurrencies give rise to a concept known as a cashless society.
In a cashless society, everyone in the world can trade freely without exchange rates, geopolitical dilemmas, and language barriers. In this guide, we’ll explain the concept and help you understand how cryptocurrency may be ushering into this new status quo.
What Is a Cashless Society?
In a cashless society, banknotes and paper money are not accepted in financial transactions. Instead, credit cards, electronic payments, and cryptocurrencies are the standard payment methods.
The premise of a cashless society is simple: eliminate cash payments from worldwide fintech transactions. This means people can avoid the barriers and hassles created by region-specific currencies and make it easier to pay people and trade everywhere.
Through the rise of cryptocurrency, non-cash transactions may not be too far in the distance.
Cryptocurrencies, operated on a blockchain network, aren’t owned by a single entity. They are completely decentralized and provide borderless mobile payments for their users.
Since cryptocurrencies, like Bitcoin (BTC) and Ethereum (ETH), aren’t owned by anyone, they can be used around the world without government interference.
Benefits of a Cashless Society
A cashless society solves significant problems in the sphere of global commerce. With that said, here are some of the advantages people can expect in a cashless era.
Since cryptocurrencies don’t have a single authority, they have much lower transaction fees compared to traditional financial services like remittances and wire transfers. This helps people save money when sending funds internationally.
For example, let’s say that you live in the United States and want to send money to someone living in Japan. Under traditional payment systems, you would have to pay wire transfer fees to complete the transaction in addition to accounting for the exchange rate between USD and Yen. But, by exchanging cryptocurrencies like Bitcoin, all you have to pay is a small transaction fee.
The best part is that the recipient can hold on to their Bitcoin or quickly convert it into Yen through their crypto wallet. As you can see, cryptocurrencies make international transactions convenient and cost-effective.
Convenience and Accessibility
Cashless transactions are easier to process than their alternatives. Cash from a specific country loses its value the moment you leave that country. Therefore, if you’re traveling overseas and need spending money, you’ll have to use your credit card and pay international transaction fees for everyday purchases.
With cryptocurrencies, you can easily have access to cash whenever you need it. If you’re visiting a crypto-friendly country like El Salvador, Japan, or Sweden, you can withdraw your crypto from a Bitcoin ATM or use your digital currencies at restaurants, shops, and even hotels. With cryptocurrencies, you can access your hard-earned cash both domestically and abroad.
A cashless society builds transparency in the financial sector through the use of distributed ledger technology.
When you use a cryptocurrency, your transactions are recorded through a blockchain, a distributed and immutable ledger. This ledger cannot be altered by outside forces, especially since transactions are verified through third parties called miners.
The use of cryptocurrencies facilitates the free flow of capital across different borders, so you can avoid currency controls and capital restrictions imposed by some governments. This enables global financial inclusion.
The availability of cryptocurrencies gives people all across the world the opportunity to send payments to one another without major issues. This is also beneficial for crypto exchanges that want to drive liquidity and keep markets stable.
Reduced Risk of Theft
Digital payments eliminate the need to carry large sums of cash, making individuals less vulnerable to theft and robbery. This is especially beneficial if you live in a country with high crime rates.
On top of that, crypto wallets come with secure login credentials so you can keep your funds safe. You can use either a hot wallet, which is a digital crypto wallet, or you can use a cold wallet, which is a hardware device that’ll hold your funds. Ultimately, cryptocurrencies can make it safer to do business with others, no matter where you’re located.
Improved Financial Tracking
Digital transactions generate clear digital records that enable users to easily monitor their spending and finances.
With better financial reporting, you can manage your spending, save money, and budget properly.
Cryptocurrencies can provide accessible financial services to unbanked and underbanked populations who lack access to traditional banking and payment options. This promotes economic empowerment.
For example, 70% of El Salvador’s population doesn’t have a central bank account. As a result, El Salvador declared Bitcoin legal tender and launched their proprietary Chivo Wallet, which allows its citizens to buy and store their Bitcoin with ease. Countries serving underbanked populations can follow a similar route.
Potential Drawbacks of a Cashless Society
Despite the benefits a cashless society offers, it isn’t a perfect solution in today’s world. Here are some disadvantages to implementing this philosophy on a global scale.
There are substantial privacy concerns to worry about in a cashless society. For example, let’s say that you’re using a centralized cryptocurrency exchange (CEX) like Binance, Kraken, or Coinbase to buy and sell Bitcoin.
Unlike decentralized cryptocurrency exchanges (DEXs), CEXs are owned by a single authority. This means they can control how they collect your data and track your behavior across their platform and other websites. If you’re wary about data privacy, this may be a deal-breaker.
A cashless society provides the opportunity for anyone to engage in the market. However, implementing this philosophy into practice may not be simple.
There will always be challenges to ensuring financial access for everyone, due to issues like a lack of digital devices, unreliable internet access, and poor digital literacy.
Cryptocurrencies are devoid of any central authority, which isn’t ideal for traditional financial institutions and governments. As such, policymakers are still grappling with how to appropriately regulate cryptocurrencies. Some countries, like China and Saudi Arabia, have banned cryptocurrencies and seem against the idea of decentralized currency altogether.
However, it’s worth noting that banning cryptocurrencies may be counterintuitive, as Binance infamously did monthly transactions worth $90 billion in the banned China market in August 2023.
Until more regulatory clarity emerges, mainstream adoption may be slow. After all, some crypto investors and pundits are reluctant to fully support the market until more government regulations come to light.
Dependency on Technology
While digital technology does provide all kinds of benefits for modern populations, it’s not ideal to completely rely on them. Regional and global shutdowns can alter crypto markets and undo the positive effects of a cashless society.
For example, sudden movements in the crypto market can cause market volatility. If you’re relying unnaturally on crypto, your assets could lose their value and leave you in a panic.
Potential for Cybersecurity Threats
Because a cashless society relies on digital technology, such as blockchain networks and the internet, the need for robust cybersecurity measures will increase.
These measures are necessary to protect users from cyber attacks and threat actors trying to exploit crypto exchanges and other similar platforms.
The idea of a cashless society may not sit well with the current status quo. Financial institutions may resist a growing cryptocurrency system that threatens their business models and practices.
This is why many traditional financial institutions will invest in blockchain technology and support cryptocurrencies, but will also stop short of backing the idea of a cashless society. After all, it could be the idea that will jeopardize their businesses.
How Does a Cashless Society Work?
Whether the idea of a cashless society is popular or not, the future may be heading in that direction. Here is how a cashless society will work if it does come to pass.
A cashless society will feature the following digital payment options:
- Credit and debit cards: These payment cards won’t go out of style since they offer people a seamless way to pay and receive money online.
- Digital assets: Customers will use digital assets and mobile wallets like Google and Apple Pay to complete everyday purchases, like buying coffee or going to a restaurant.
- Online banking: Online banking can give customers a convenient way to access their funds, track their finances, and send money to others.
In a cashless society, “tapping” your debit card on a terminal will become the norm for making payments.
Known as Near Field Communication (NFC) technology, users can take advantage of quick and secure transactions without physical contact. Customers can easily make payments by tapping their cards or smartphones on checkout terminals.
Virtual currencies, like cryptocurrencies, altcoins, and stablecoins, will have a high impact in a cashless society since they don’t require cash to use. To make cryptocurrencies more available to the general public, more crypto exchanges will come into existence to facilitate buying and selling orders.
If you’re considering starting an exchange, AlphaPoint provides the white-label services you need to bring your venture to market as soon as possible.
Peer-to-Peer (P2P) Payments
Cryptocurrencies aren’t the only ways people can send money to each other. P2P payment services also make global transactions possible. For example, platforms like Venmo, PayPal, and Cash App facilitate electronic money transfers between individuals.
An effective cashless society will employ rigid security measures to keep everyone safe. These security measures will include encryption, multi-factor authentication, and fraud detection systems as key components.
All of these security measures will make it difficult for anyone to illegally access your financial accounts, compromise your funds, and steal your identity.
Countries Embracing a Cashless Society
A cashless economy may be on the horizon. Some countries have already begun experimenting with making cryptocurrencies legal tender.
For example, El Salvador has passed a law requiring small businesses to accept cryptocurrencies as legal tender. In fact, the Salvadoran government partnered with AlphaPoint to build the Chivo Wallet and encourages its citizens to buy and sell Bitcoin so the country can reduce its dependence on the US dollar.
El Salvador’s experiment is still in its beginning stages. However, it’s not hard to see other countries following suit if this experiment is successful.
How AlphaPoint Is Making Cashless Transactions More Convenient and Secure
While a cashless future may not be imminent, it’s an interesting phenomenon that’s looking more and more likely due to the growing popularity and implementation of cryptocurrencies.
If you’re planning on starting a crypto exchange, it’s important to stay on top of these trends to adapt accordingly.
At AlphaPoint, we support the framework of a cashless society. We already helped El Salvador build their Chivo Wallet, and we’re ready to help your business embrace the cashless future.
To see what we can do for you, request a demo today.
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