"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks" is stamped on the Genesis block of Bitcoin—the very first cryptocurrency.
Created in the wake of the global financial crisis of 2007, Bitcoin was designed to bring commerce back to the hands of the people. Banks had invested their customers’ funds into high-risk mortgages that failed over time due to a lack of repayments. And then came the federal bailouts. For a moment, the world lost faith in the banking system.
Bitcoin’s purpose is to remove intermediaries from the financial system so that people can have complete control over their funds. It is designed to enable the exchange of value through a peer-to-peer network.
Despite the great proposition of Bitcoin and other digital currencies—the promise to lay the foundation for a better economy, mass adoption is still a hurdle to surmount. At present, there are only approximately 50 million digital currency wallets. While the amount of people and businesses using digital currencies to transact is steadily rising, most are still using these currencies as a speculative trading asset or holding them in their wallets for the long term.
Cryptocurrencies are not widely utilized in day-to-day business for paying for goods and services. This is primarily because the prices of most digital currencies remain highly volatile, and may sometimes rise or fall by 10% within hours. So, people like you and I prefer to use fiat currencies rather than risking our fund’s value to the price fluctuations. In addition, accepting digital currencies for business payments would mean keeping track of extreme price gains and losses to calculate tax liability.
This is a barrier for the wider adoption of crypto and prevents the world from experiencing what seems like the future of the economy. But the question is if the volatility of digital currencies doesn’t subside, is there no safe way for the world to participate in the new financial infrastructure?
Well, today there's a new generation of digital assets called stablecoins. Pegged 1:1 to the value of global currencies and other assets, stablecoins are the best and the safest way for businesses and consumers to be a part of the digital currency economy.
Simplify Digital Currency Business Transactions and Taxes
The majority of the population still struggles with digital currencies. They are perceived as risky and lacking in security compared to fiat currencies. But stablecoins bridge that gap and provide the safety net we require to start using digital currencies for business transactions, explains Shehan Chandrasekera, the Head of Tax Strategy at CoinTracker.io.
Similar to other cryptocurrencies, stablecoins offer almost instant national and international transaction settlement, lower fees, excellent security, and transparency without market volatility. They are backed by other assets such as global currencies and maintain a stable price just like traditional money.
The price stability of stablecoins brings us the opportunity to use digital currencies for our day-to-day business transactions. By choosing stablecoins for business, especially for international transactions, we can avoid paying high transaction fees of financial service providers. Besides, the traditional financial system can take days to settle cross-border payments. Stablecoins allow us to make the same transaction in almost real-time.
On the tax front, a blockchain ledger records all stablecoin transactions in an immutable and transparent manner. Businesses can easily refer to their transaction records for a fair idea of their payments. Also, there are no major gains or losses in the price of stablecoins. This will help businesses calculate their taxes the same way they do for fiat payments.
Stablecoins are an attractive alternative to a legacy financial system that is excessively slow and expensive for business use. Stablecoins might also be the best way for the mainstream population to adopt digital currencies and enjoy the benefits without the same perception of risk.
"Stablecoins offer the same things that we like about Bitcoin, without the volatility—which we don't like for commerce. If you want to see the adoption of digital currency for the masses, stablecoins solve that problem." Said Chandrasekera.
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Shehan Chandrasekera, CPA, is the Head of Tax Strategy at CoinTracker.io and a writer for Forbes Crypto. Shehan also leads the Technology & Startup niche at JAGArgueta CPAs in Houston and is the Associate Director for the Houston Blockchain Alliance.