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What does FedNow Mean for Crypto?

A phone displays the words “FedNow 24/7 Instant Payments” in front of a circle inscribed with an eagle and the words “United States Federal System”

The recent launch of the Federal Reserve’s instant payment system FedNow has raised concerns among crypto enthusiasts. Could it be a threat to crypto? Find out why FedNow was created, what it is, how it compares to crypto, and what if any competition it presents for the crypto space.

Why was FedNow developed?

FedNow was created in direct response to one key problem: the Federal Reserve’s back-end payment system was simply in need of a long overdue upgrade. It was essentially developed to bring the previous system up to the speed that European countries and foundational cryptocurrencies have been comfortable with for years.

Prior to the launch of FedNow, Automated Clearing House (ACH) payments were completed in batches once a day, so it normally took one to three days (if not weeks) for domestic payments to be processed. Instant payments are now possible for opted-in U.S. banks, thanks to this system upgrade.

Will FedNow replace crypto?

While instant settlements are one of FedNow’s notable similarities to crypto, there are still a number of differences between what FedNow and cryptocurrencies, such as stablecoins, offer.

With the FedNow upgrade, “banks and credit unions of all sizes can sign up and use this tool to instantly transfer money for their customers, any time of the day, on any day of the year.” In other words, the FedNow is only available for use by opted-in United States-based financial institutions and “a bank account is required,” according to Blockworks.

Crypto on the other hand is a borderless payment solution for the underbanked and unbanked. Its decentralized nature allows “crypto-to-crypto exchanges,” which means you don’t need to be a bank, have a bank account, or opt-in to an institution to send or receive crypto. While transaction fees may be applied to some cryptocurrencies, unlike banks, they do not charge remittance fees for international transfers.

While FedNow modernizes U.S. bank payment infrastructure, it doesn’t replace the majority of use cases for crypto due to its restricted market reach, cross-border limitations, and infrastructural constraints. It may even open doors for increased crypto adoption in the future, which will be of interest to potential BItcoin IRA investors.


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