Over the past 3 years, it’s become apparent that cryptocurrency payments are becoming increasingly popular, particularly peer to peer and in developing countries. What’s just as obvious though, is that big and small merchants alike, understandably don’t want to deal with two key hurdles of accepting cryptocurrency as a payment method: Volatility & Security.
Bitcoin and Ethereum as money has its benefits, particularly in countries that suffer from highly volatile state currencies. It’s borderless, often very low in fees and believe it or not, sometimes even less volatile than traditional currency. In August 2018, the Turkish Lira collapsed by 20% in a single day, eerily reminiscent of the moves we saw in the cryptocurrency bear market.
The Turkish also now hold more crypto than any other European nation, and while that’s more likely for its upside potential than any desire to use it as money, they may also see it as a hedge against their own currency.
In recent years, we’ve also seen an explosion of peer to peer payments with cryptocurrencies in many countries such as Philippines, Chile and of course Venezuela, with LocalBitcoins (a bitcoin peer to peer exchange) weekly volumes reaching an average of 40-60 million USD a week in 2019.
In countries like the US and UK, these peer to peer figures are a little lower, but the number of crypto holders is still extremely high and growing daily.
Getting cryptocurrency accepted at your favourite retailers is not so easy. Looking at two examples, Nike & Uber, we can visualise the requirement for a entire new (or multiple new) departments, consider regulatory and legal, responsibility over wallets, and even access to a liquid exchange where you can sell into fiat quickly.
It becomes a game of risk management as its likely considered a high-risk asset. In the case of Uber - does a driver really want to accept cryptocurrency when the price may drop by 5% the moment the passenger pays? The solution here for payments is stablecoins - asset backed cryptocurrencies that reflect real money, like USD or GBP.
Though having stablecoins and being able to exchange them for their real world counterpart seamlessly, and instantly, is another problem that desperately needs a scalable solution.
There are also considerable security concerns - given that the business (e.g. Nike) would now have sole responsibility over their funds internally. Who would be in charge of the wallet and private keys?
At the moment, sending, receiving, saving and spending completely lack synergy due to a lack of user friendly tools and infrastructure.
However, movements are now being made toward not only more secure but more user friendly wallets through the use of technology like social recovery (recover your private key using trusted contacts), multi-signatures (multiple people needed to access the wallet), and overall better user experience with more seamless features.
Crypto is clunky, but some of the infrastructure is there, and the super slick user interfaces are coming sooner than you think.
A future where retailers feel more comfortable holding might not be as far off as we think, but it’s still a certainty they will want stable cryptocurrencies and fiat currencies like GBP and USD as an option.
Some crypto startups are now focusing on creating front end solutions with built-in payments infrastructure that allows a merchant to accept cryptocurrency, but not receive it, and instead receive fiat currency like GBP, or stable, asset backed cryptocurrencies like Paxos or TGBP.
These wallet services will rapidly increase in popularity as merchants push to be ahead of the curve and accessible for more customers, especially with software that’s plug and play, so long as it remains easy to integrate with the existing business payments infrastructure.
Two things to keep in mind in 2020 with all the above considered: not only do millennials now have the most spending power of any generation on the planet, but one in five of them own cryptocurrency. With this considered, it’s about time merchants (and investors) took cryptocurrency payments seriously.
Nike has already filed a patent for “CryptoKicks” - and my Uber driver told me to buy XRP, so I’d say we are well on our way to mainstream crypto payments.