The Gateway to Digital Money: on and off ramps

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Before the introduction of currency, people relied on barter to exchange goods and services. Crops or livestock, such as cows, would be exchanged for machinery or other goods they didn’t have. However, barter was an inefficient practice, with individuals having to travel long distances to find suitable trade partners who had what they wanted. Even if one could find a perfect trade partner, often it wasn't easy to agree on the value of the trade and reach fair agreements.

The introduction of money, a common base for prices, solved such challenges. Money allowed individuals to trade goods and services indirectly and provided a means for individuals to store their wealth. While the form of money has evolved, those two functions still apply - a medium of exchange and a store of value.

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Digital Money

For decades, we thought of money as the deposits in the bank or the coins and notes in our pockets. However, the introduction of Bitcoin changed our view of what money is.

Like fiat, Bitcoin and other cryptocurrencies are used as a store of value (in countries with high inflation, such as Argentina) or as a medium of exchange (in countries like El Salvador, where Bitcoin is legal tender).

However, their adoption as digital money is still limited, in part due to their high volatility. Imagine going to the shop to buy milk and realising at the checkout that the Bitcoin in your wallet was not enough for the milk since the value of Bitcoin had just decreased.

And so, to provide a more stable alternative, Stablecoins emerged. Stablecoins pegged to the US dollar are highly used worldwide in various use cases, such as for supply chain payments or by emigrants to send money home to their families. Stablecoins provide a faster and cheaper alternative to traditional solutions.

These different forms of new digital money have enabled a new digital economy across the globe. However, its adoption and reach are still relatively limited. One of the key challenges has been the lack of accessible and efficient “on” and “off”-ramps between crypto and the traditional economy. This disconnect has made it challenging for individuals and institutions to transfer fiat to crypto (on-ramp) and from crypto to fiat (off-ramp), limiting the broader acceptance and utilisation of digital currencies.

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Challenge: On and Off ramps

To buy crypto or stablecoins, individuals can either use self-custody wallets, with their complex user experience, or third-party custodians, which tend to have a more familiar and friendly UX but have high risks, as recent hacks and fraud stories have demonstrated.

To make payments, individuals must exchange their crypto for fiat since most businesses and shops still do not accept digital currencies. Traditionally, off-ramps involve navigating exchanges and traditional banks, resulting in several complex steps, long transfer times and high costs.

And so, individuals find themselves either not buying crypto and joining this digital economy or struggling to use their digital money. Consider the example above in which migrants use crypto or stablecoins to send money home to their families. Imagine families in remote locations struggling to exchange crypto for fiat and not being able to pay for their electricity or buy food. If it takes more than a couple of steps and leaves the user feeling stressed, we have failed to onboard users into the digital economy. ?

This is one of the biggest opportunities in the digital economy, simplifying user onboarding and experience and bridging the gap between the crypto and traditional economy.

Visa and Transak solution

VISA, a well-known traditional payment provider, decided to tackle this problem. Last week, Visa announced a strategic partnership with Transak (a web3 infrastructure company) aimed at simplifying the conversion of cryptocurrency into fiat and vice versa. This new partnership allows clients to withdraw cryptocurrencies into fiat using a VISA debit card across 145 countries.

While the transactions are not instant (they take 30 mins or less), it is a significant improvement over traditional payments. The reality is that most transactions in financial services will never be instantaneous since teams and leaders will want to keep some time for verification processes.

While more information is needed to evaluate this collaboration fully, it could represent a significant stride towards the mainstream acceptance and adoption of cryptocurrencies and stablecoins. The Visa brand should provide safety for individuals considering the new digital money.

But we still need more. We need more solutions that bridge the gap between the new digital economy and the traditional one, providing not only a seamless experience but also alternatives for users to select from.

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Final Thoughts

Now that regulation is being defined and developed globally, we should expect more companies from the traditional sector to start looking into this space. User experience is one of those areas in which many Web2 companies have excelled. FinTechs and BigTech, for example, disrupted traditional banking and provided new and simple banking apps and experiences. We should expect that they will do the same with Web3.

Until next time

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This is a new and exciting space, so ideas and perspectives may change as we learn more and technology improves.

Any views or opinions represented are personal and belong solely to the author and do not represent those of people, institutions or organisations with which the author may or may not be associated in a professional or personal capacity unless explicitly stated.