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For most businesses, opening a bank account and getting access to a variety of services is a straightforward task.
But this is not the case for certain businesses. Particularly those that operate on the fringes of society.
The burgeoning cannabis industry is a case in point. The industry is legal in a number of states in America. Yet, many of these businesses still can’t access the most basic of banking services.
It’s a big problem for an industry projected to grow to $16 billion in 2019. Business owners have had to think of imaginative and dangerous ways to store millions of dollars in physical cash.
The problem is that while the industry is legal in California and other states, most banks cannot offer these businesses services. This is due to federal laws. Most commercial banks in America are insured by the Federal Deposit Insurance Corporation. This prohibits them from providing services to industries that are illegal at a federal level.
These companies are making millions legally. But, they simply can’t find banks that will help them store and manage their money. They are crying out for basic financial services.
Fortunately, we are finally seeing the first real legal steps to address this issue at a state level in America. This gives the flourishing cannabis industry a lifeline to address its lack of financial services.
Lawmakers in California have proposed a new bill. This will allow cannabis-related businesses to pay state fees and taxes using stablecoins. The bill would take effect in 2020 if passed.
It will allow cities and counties to collect taxes and fees using stablecoins. They can then convert them into US dollars.
California’s State Treasurer Fiona Ma spoke to the US House Committee on Financial Services in February. She pointed out that many cannabis-related businesses have to carry suitcases of cash to the tax authority offices. Just in order to settle their quarterly accounts.
It’s a ludicrous state of affairs that needs a forward-thinking, digital solution that is already on hand.
How crypto aims to solve the banking problem
Crypto has long offered a solution to the inefficiencies and flaws with fiat currency and the banking system.
Bitcoin’s whitepaper gives one of the best descriptions of crypto’s intent.
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.
This is the crux of what cryptocurrencies look to do. It gives people the power to make transactions of value directly between each other. This can all be done without the need for a centralized authority to store their funds or facilitate these transactions.
Furthermore, many cryptocurrencies allow you to do this anonymously and quickly, without the need for centralized approval. The more difficult it is to win that approval, the greater the demand for a decentralized financial system.
While the benefits are clear, crypto is hard to accept by mainstream institutions. This is because understanding how crypto works requires a steep learning curve.
Meanwhile, many investors and financial institutions worry about wild swings in value. A feature that has characterized cryptocurrency markets over the past few years.
However, there is a crypto option that addresses many of these concerns. This could offer a gateway to crypto for mainstream institutions.
Stablecoins: A gateway to crypto
Stablecoins have been part and parcel of the crypto landscape for a number of years. Crypto veterans are often skeptical of stablecoins. However, stablecoins could provide the potential for mass user adoption of cryptocurrency.
For the uninitiated, stablecoins are cryptocurrencies tied to a stable asset or assets. This is intended to negate the price volatility of various decentralized cryptocurrencies.
Stablecoins are usually fixed to a fiat currency, like the US dollar. They offer an easier transition into crypto for the layperson because they can easily understand what a stablecoin is worth and don’t have to be concerned about wild price swings.
It’s also great for retailers. They can accept stablecoins without taking on unwanted currency risk. There is a much lower possibility that your crypto holdings could appreciate or depreciate in value. Plus, most still have to pay their bills in traditional fiat currency. Until the ecosystem is entirely ready to accept crypto, stablecoins will bridge the gap.
What does this mean for Crypto Law Insiders?
As Insiders know, we try not to extrapolate too much from any one data point. But to be fair, even if this California bill does not pass, it’s a great sign of what lies ahead.
Businesses and lawmakers are starting to understand that crypto provides solutions that traditional fiat currencies don’t.
There is a powerful irony to governments accepting stablecoins as a solution to problems they themselves created. Regulators add more challenges regulators to the banking industry. As a result, this adds more fuel to the fire for businesses to find alternatives through crypto and stablecoins.
Governments see cryptocurrencies as a challenge and potential replacement of their fiat and banking systems. And to counter this, they’ve implemented unreasonable banking KYC AML requirements to limit the growth of crypto-related businesses.
Laws like the one California is proposing are just the beginning.
Over the coming years, I expect stablecoins to grow exponentially. Businesses that cannot access traditional banking systems increasingly seek solutions to their problems. And as the stablecoin ecosystem grows, others will be drawn into it.
Stablecoins will be the gateway into the world of crypto for millions of users.