In the biggest sign yet that cryptocurrencies are here to stay, global credit card giant Mastercard has announced that it will allow people to send and receive payments using these digital coins by integrating them into its network this year.
Here’s the lowdown on this groundbreaking announcement and what it means for the future of payments.
The cryptocurrency market is growing fast
The last year has been a very good one for cryptocurrencies. Interest in these digital tokens has spiked and raised their value by huge margins.
The price of Bitcoin has risen from $4,800 (£3,500) in March 2020 to an all-time high of above $49,000 (£ 35,500). Other crypto assets have also seen big gains in the last 12 months.
Forecasts on the future of the crypto market remain bullish with plenty of analysts expecting it to grow even more in 2021.
Mastercard to start supporting cryptocurrency payments
Mastercard already allows customers to use their cryptocurrency holdings for transactions. However, these transactions are not done on the company’s network but through intermediaries who convert cryptocurrencies into traditional currency at the end of each transaction.
Mastercard is now going a step further by integrating select cryptocurrencies onto its network.
This means that customers will now be able to receive and make direct payments with cryptocurrencies through the Mastercard network, which should make transactions both quicker and cheaper.
Tough criteria for cryptocurrencies
It’s not yet clear which cryptocurrencies Mastercard will support. The company says that it’s looking at ‘crypto assets that offer reliability and security’.
It says that crypto assets must meet these four criteria to be considered:
- Stability as a means of payment
- Rigorous customer identification processes
- Full compliance with local law and regulations
- Efficient customer protection and privacy
Unfortunately, not many existing assets meet these requirements.
Bitcoin, for example, is unlikely to make the cut as it violates a few of Mastercard’s criteria. The company says: “To reach our network, crypto assets will need to offer the stability people need in a vehicle for spending, not investment.”
Bitcoin’s extreme volatility makes it quite unpractical as a day-to-day currency. Most people see it as more of an investment or a store of value than a medium of exchange. That’s also the case with other major cryptocurrencies like Ethereum and Litecoin.
With this in mind, Mastercard is likely to focus on stable coins like Tether (USDT) and USDC Coin (USDC), which are crypto assets with their value tied to that of traditional currencies like the US dollar.
Many other companies are also adopting crypto
Mastercard joins several other major companies that have already embraced cryptocurrencies.
Elon Musk’s Tesla Inc recently revealed that it has invested about $1.5 billion (£1.1 billion) in Bitcoin. The company will also soon start accepting cryptocurrency payments for its cars.
And before that, PayPal launched a service that enables users to buy, hold and sell cryptocurrencies.
Mastercard’s main rival Visa has also said that it may add crypto payments in the future.
What Mastercard’s support for cryptocurrencies means for the future of payments
If Mastercard follows through with its plan, it will give more credibility to cryptocurrency as a legitimate mode of payment.
We can expect to see the use of digital assets expand and cryptocurrency payments become even more commonplace.
That said, there are still a lot of unknowns, not the least of which is how the market will respond. After all, many people are still wary of cryptocurrencies.
The big question now is whether Mastercard’s support of cryptocurrency payments can help eliminate some of the scepticism that plagues digital assets and pave the way for mass adoption. We’ll have to wait and see.
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