Following Visa’s announcement of settling transactions on the Ethereum blockchain, the digital token saw a new all-time high as it jumped by 5%.
Decentralized finance or DeFi has absolutely exploded in the past year, taking existing financial products and moving them over to the blockchain. These include things like savings, loans, trading and also payments.
This has risen concerns and question whether DeFi is here to stay or not?
However, now a massive vote of confidence has come by a major player like Visa using Ethereum to settle transactions. Visa now accepts payments in USDC stablecoin on Etehreum digital ledger. Visa is initially working with crypto.com for this service and then the company hopes to launch USD settlement capability for other partners as well in the year ahead.
USDC stablecoin is a cryptocurrency the price of which doesn’t change. It is pegged to the US dollar and it can always be redeemed for a dollar.
Crypto.com is a really popular service offering credit cards where you can spend in cryptocurrency. What Visa is doing right here is that it is offering a blockchain native way to do this. So essentially instead of buying cryptocurrency and then converting it into fiat currency whenever the payment takes place, it is settled in the blockchain. Basically, the whole idea is that now you can spend cryptocurrency whenever you go make a payment at any restaurant, store etc. Other crypto payment solutions work this way, basically you hold USDC in your wallet that’s attached to your debit card. And then when you make a payment, it basically just converts the cryptocurrency into dollars thereby entering it into the old payment network. This actually does the payment natively.
Following Visa’s announcement Ethereum reached its all-time high on Friday. The digital token rallied as much as 18% and traded at $2,074.46 according to data compiled by CoinDesk.
The question now is why would Visa choose the Ethereum blockchain?
There are some logical conclusions to Visa choosing the Ethereum blockchain. USDC is a widely used stablecoin and it is most widely used on top of Ethereum so that is really logical choice. Ethereum is very decentralized and a lot of DeFi innovation and activities happen on top of Ethereum and that’s where the users mostly are.
There are a lot of doubts suggesting that the fees are too high. Critics are questioning whether there will even be any value in making transactions on a blockchain where the fees are quite high.
However, the benefits one will get out of this essentially outweigh these high fees on the Ethereum blockchain. The biggest advantage is the settlement time. A transaction on top of a blockchain like this gets completely settled finally as fast as the blockchain moves. So in Ethereum, this could be less than a minute as compared to old legacy financial infrastructure.