Volvo's Crypto Experiment Makes More Sense Than It Seems

Volvo Group is testing its own blockchain-based cryptocurrency for supplier payments.

That's a surprising headline. It sounds like something straight out of the ICO boom, when every company under the sun wanted to launch its own token as a payment method within its own ecosystem.

I can't immediately think of a single widely discussed project from that era that still serves its original purpose. Gram, maybe? No, probably not. Gram itself is certainly still alive, and rabbit.io users exchange it fairly often. But it never became the main payment currency within the Telegram ecosystem, and at this point it probably never will.

So why is Volvo exploring what looks like a dead end?

Because Volvo isn't thinking about crypto the way those ICO projects did. This isn't about minting its own money for customers. It's about having a settlement tool that no outside party can control.

Whenever Volvo settles accounts with partners in any fiat currency, banks inevitably get involved. And banks always bring the risk of a payment being frozen or blocked.

That risk can be avoided through a netting arrangement: I ship you $20 million worth of goods today, you provide me with $20 million worth of services later, and we call it even. The catch is that $20 million today isn't the same as $20 million in the future. Every fiat currency loses value over time.

Cryptocurrency can address both of these risks, along with several others. For example, it makes it possible to trace every transaction from end to end and rule out questionable schemes.

That's where the real advantages of cryptocurrency come in. It's about time financial regulators finally acknowledged them.