When Paypal, which has more than 400 million active accounts worldwide, recently announced it would allow UK customers to make payments with cryptocurrencies, the company gave the market the green light.
Not that the crypto market wasn’t already in full swing: according to Crunchbase, venture capitalists allocated $12.1 billion into cryptocurrency companies in 2021, the highest amount since 2017, the year cryptocurrency derivatives came into existence that brought the first financial institutional investors into the sector.
The most popular cryptocurrency, bitcoin, was invented as a response to the first major financial crisis of the 21st century: the subprime mortgage crisis. After the explosion of derivatives and ICOs (Initial Coin Offerings) in 2017, with many projects, in 2018, cryptocurrencies faced an 80% drop in their values. This is because many of these PowerPoint projects failed to take off, which led to a substantial drop in the market.
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In 2019, the crypto market started picking up several cryptocurrency-related products and exchanges with a large retail product offering, which also caught the attention of institutional investors.
But why has the appetite for cryptocurrencies and crypto-assets increased in recent years? LABS spoke to Bruno Milanello, a new business executive at Mercado Bitcoin, the Brazilian cryptocurrency exchange that recently became Latin America’s first crypto unicorn, about crypto payments, the experience of El Salvador, the first country in the world to adopt Bitcoin as a legal tender, and what’s missing for the crypto payments market to take off:
LABS – We see more and more cryptocurrency unicorns, such as Mercado Bitcoin, around the world. The sector is being targeted by investors; why do you think it has been happening?
Bruno Milanello – This attention that crypto has started to get doesn’t come from now. It is only increasing, and it is here to stay. In 2020, the pandemic was a litmus test and an environment to test an asset shaped precisely for this situation where everyone is online.
We had central bank” “holding do “n” the economies by printing money, with low-interest rates, and a paradigm shift in August 2020 when we start to see non-financial institutional investors enter the cryptocurrency market more heavily.
That move was led by Michael Saylor, the U.S. entrepreneur who put a lot of Bitcoin into the treasury. That led to a big step change. He not only invested but also gave several courses and lectures, made available all his learning in accounting terms, in tax terms, everything the company did to provide the comfort to shareholders to be able to invest in cryptocurrencies.
There was a very big change in how companies and investors started to look at cryptocurrencies. You’re in an environment where you have possible future inflation rising because of money printing, and you have an asset that is supposedly deflationary because of all the economics of it, the mathematical structure of how it was designed, decentralized, so whatever happens in the economy the bitcoin tokenomics is not going to change. It stays the same. While governments can influence a lot of things, bitcoin has this pre-designed structure. When we say that bitcoin and cryptocurrencies are uncorrelated with other assets in the market, this is no longer true.
Not that the correlation is positive or negative. But it is now integrated with all other assets, as another investment class that investors have as an option.
We now have discussions with the central banks for the creation of digital currencies. This not only sanctions cryptocurrencies but technology as well. It means there is something good there.
LABS – How do you see payments with cryptocurrencies since PayPal has released this type of payment in the UK?
Bruno Milanello – Today, companies using crypto as a payment method are much more eyeing the future, trying to approach this generation that knows very well how to navigate cryptocurrency than actually wanting to do business.
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Business today with cryptocurrencies is still derisory, it’s not an easy user experience. The user who wants to pay something with crypto has to have his wallet, has to know what a wallet is, know how to transfer, has to know how long to wait and why to wait, he has to know a lot more stuff, it’s not the same as doing a Brazil’s PIX. There are many problems with the use of cryptos as a means of payment from the point of view of user experience. There is also the issue of price fluctuation, the volatility of the asset
Bruno Milanello, a new business executive at Mercado Bitcoin
It’s an emblematic issue. Everyone who has crypto talks like this “it would be great going to the bakery and pay with cryptocurrency.” But you don’t want to risk going back to your house and seeing that you paid BRL 100,000 for bread and coffee. Nobody wants to take that risk.
Companies need to work on the user experience. Our mind does not work in eight decimal places. For example, I have to pay 0.00045 bitcoins for coffee. I don’t know if this is expensive or not. You still need to convert the value in your mind, and that conversion may never come.
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Looking at history, the gold standard did exist, but it was much more of a financial issue than everyday practice. Nobody was going to buy with a gold bar in the market or anything like that. People don’t do their calculations in ounce-troy. It’s a store of value, but gold didn’t work as a means of payment either. We may experience this with cryptocurrencies too. It is still difficult to know, but I think that before we go through this moment, we will see much more companies adopting crypto.
When they come to us, companies ask: “is it worth it for me to put cryptocurrency as a payment method?” Technically, no. Financially it’s not worth it either. But strategically, methodologically, it makes perfect sense to accept cryptocurrencies as a payment method. Because automatically, you become a global player because anyone can pay with crypto. And as much as your industry is traditional, you are a company that is tuned in to what is happening
Bruno Milanello, a new business executive at Mercado Bitcoin.
LABS – How do you see the experience in El Salvador?
Bruno Milanello – The whole community is watching the learning that the El Salvador experience will bring to the world.
El Salvador is a fairly small economy. It is not of much relevance from an economic point of view, but it has several problems that several other countries share, the inflationary problem, the devalued local currency.
Someone needed to get started. It’s nice that it began to in El Salvador; I think it’s easier because as it’s a smaller economy, it’s much easier for you to see the impact and study, react and change course if necessary.
Having another country actually adopting cryptocurrency as a legal tender as El Salvador did is more difficult. But Salvador’s experience may spur the adoption of cryptocurrency in other places, which may start accepting the official currency and cryptocurrency as well.
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It’s easier for us to see central banks having part of their international reserves as cryptocurrencies. I think we will see this in the short and medium term. Today we have more than 10,000 cryptocurrencies. I particularly don’t think there is room for 10,000 cryptocurrencies; it is tough to address or see all the differences between them. A natural selection will happen, as with every industry.
LABS – Mercado Bitcoin has launched a currency that represents carbon credit. How does it work?
Bruno Milanello – We have listed here in Mercado Bitcoin a coin MCO2 that comes from the company Moss. This coin represents a carbon credit. We have a partnership with Moss, and we have zeroed all of our carbon emissions since our foundation by purchasing these coins.
Using the Moss calculator, this currency allows each person to know how much carbon they produced and offset it by buying these carbon credits.
Moss has projects in the Amazon rainforest with companies that are creditors of carbon credits. They buy these credits, package them in the form of digitization, put them in blockchain, it becomes a currency, and this currency is listed here on Mercado Bitcoin.
We have two types of carbon market, the regulated one, which is when a government determines the value of the carbon credit, and the voluntary one, that’s when supply and demand and companies determine how much it’s worth. Moss operates in this part of the unregulated market.
We listed this currency even before the whole issue of energy discussion around cryptocurrencies. It is a coin that is doing very well here; it has a lot of exposure.
LABS – Does this carbon credit purchase really work?
Bruno Milanello – Today, when you write off a carbon credit, there is no such thing as removing it from the atmosphere and destroying it. That was a way of communicating it, but actually, when you help neutralize your carbon footprint, you’re helping clean projects. Projects that do not emit CO2 into the atmosphere. By helping these projects, you automatically no longer emit; for this reason, you end up reducing the emission. But you don’t remove what you already have of carbon in the atmosphere.
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But the fact that you don’t contribute to increasing the emission means that you can offset it. These companies are creditors of these credits because they are clean and sell the surplus to those who have produced more carbon.
