Incessant Evolution: How Stablecoins Change Traditional Finances

If we consider wide adoption and support, stablecoins have the biggest chances to gain it, and that is why stablecoins have the chance to change traditional finances. Recently, the president of the European Central Bank maintained, that institutions should take active steps towards adopting the digital assets. On December 12, Christine Lagarde posted a tweet, saying:

”My personal conviction on the issue of stable coins is that we better be ahead of the curve. There is clearly demand out there that we have to respond to.”

The importance of stablecoins

Being ahead of the curve and responding to the demand may be a bit contradictory, but Lagarde clearly stresses on the importance of stablecoins — crypto tokens backed by traditional assets, like fiat money. Lagarde further noted, that the ECB has found stablecoins more attractive than Bitcoin (BTC). This viewpoint echoes with the comments of the IMF, suggesting that digital currencies may benefit customers and society substantially.

Stablecoins are tethered 1:1 to underlying assets, thus representing an innovative technology, an amalgam of new and old, which soothes the doubts of those who may otherwise be skeptical towards cryptocurrencies.

Stablecoins have numerous advantages, some of them being seamless, cross-border payments of blockchain-based assets and high transaction speeds. Open architecture enables them to be integrated into digital apps, a significant upgrade for the proprietary legacy systems of centralized banks.

Stablecoins can transform taxation

Stablecoins are particularly promising when it comes to taxes. Actually, they have a potential to overturn orthodox, old-fashioned tax collection procedures, due to which only 14% of cash transactions are properly taxed.

In an attempt to improve the situation, the Californian government recently introduced a legislation approving the collection of tax payments in cryptocurrency. This occurred after council member of Berkeley City, Ben Bartlett, became the first elected official to buy cannabis — which is legal in the state — with crypto, including Bitcoin Cash (BCH) and the stablecoin Universal Dollar (UPUSD). The transaction was conducted via a specialized Android-based terminal, and the merchant received the payment in crypto (minus high transaction fees), and the local government got a real-time, paper-free tax remittance. We will not discuss, who got more advantage from this transaction — the consumer or the California tax service.

Incredibly, the state will get a record $3.1 billion in licensed cannabis sales in 2020, and the black market is even larger. This is mainly because merchants need to put the weight of heavy costs associated with conducting business in cash on the customer. There’s no wonder that the government started to seek an alternative way of tax management.

There is a lot of businesses who rely mainly on cash and suffer from crime, and the cost of cash is unbelievably high. The cannabis industry was only one example. Though absolutely legal in California, it is conducted in the same way as 20 or 30 years ago: you withdraw cash from the ATM and give it to the merchant.

Considering councilman Bartlett’s purchase, the merchant and the tax collector received a stablecoin. No need to go to the ATM, no high transaction fee, and no security risk which arises from transacting large sums in cash every day. One more feature, which is especially appealing to authorities, is that tax is collected instantly, with every single transaction. It means that city officials can predict their tax revenues precisely.

There is a lot of work to be done with legislators, merchants and different companies across the U.S. to allow people to fully leverage this opportunity, but the process has already started. By using stablecoins this way, the California government proclaimed that it can adopt a more efficient, transparent tax collection procedure, while also disposing of the inefficiencies and crime associated with the existing model, which forces cannabis merchants to stick to strict cash-only policy.

What does it mean for future?

Stablecoins represent the inevitable future of finance: assets which can be borrowed, spent, saved or exchanged. A few years will pass, but the way the world considers money will evolve. A U.S. dollar will remain a U.S. dollar, but in digital/crypto form. It will be just an enhanced, easier for transactions form of a paper dollar. A euro will be an enhanced euro, and the technology itself, be it ERC-20 or any other, will disappear behind the curtain.