Cryptocurrency adoption in retail: why merchants are joining the financial revolution
Lower transaction fees, access for everyone, immediate settlement, borderless payments and a decade of maturity – no wonder Bitcoin and other cryptocurrencies are now being embraced by retailers and consumers alike
Bitcoin, the original mainstream cryptocurrency, has been coined “digital gold” – and with good reason. Launched in January 2009, it enables a new way of transacting and has spawned thousands of other unique cryptocurrencies. Minimal transaction fees, access for everyone, immediate settlement, borderless payments, and decentralisation are five good reasons why – after over a decade of maturity – retailers and consumers alike are now rushing to embrace cryptocurrencies.
On Hallowe’en 2008, only weeks after the collapse of Lehman Brothers, then the fourth largest investment bank in America, Satoshi Nakamoto – the mysterious and still-unmasked figurehead of the Bitcoin movement – published his famous white paper, Bitcoin: A peer-to-peer electronic cash system. The author (or authors) proposed a “version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution”.
No one could have predicted how game-changing the cryptocurrency revolution would become in such a short space of time. It is reasonable to argue that the core reason for its rapid success is down to the invention of blockchain technology – the decentralised, immutable digital ledger that underpins Bitcoin, and for many the more exciting innovation. Indeed, there were precursors to Bitcoin, such as B-money and Bit gold, but they failed because they were not founded upon blockchain, which experts believe has the potential to be more transformational than the internet.
Bitcoin adoption was slow to begin with, however. The first real-world cryptocurrency transaction happened in May 2010, almost a year and a half after the genesis block was mined: two large pizzas were bought, in Florida, for 10,000 BTC – then worth around $80 (£61) and now equivalent to around $40 million (£30 million).
The surge and rollercoaster fluctuations in the cryptocurrency markets over the decade since Bitcoin’s inception is a testament to its explosion in popularity, fuelled by more people realising its next-level capabilities. Consider the cost of one Bitcoin peaked at $20,000 (£15,000) in December 2017 after beginning the year valued at $900 (£720), representing an incredible 1,300 per cent rise in less than 12 months. Other cryptocurrencies have followed Bitcoin’s lead, including Ethereum (ETH), Litecoin (LTC), and Ripple’s XRP, and in 2019 numerous use cases of blockchain applications span a multitude of industries.
Cryptocurrencies may seesaw in the markets, but what is abundantly clear is that their usefulness – powered by blockchain technology – is expanding. Little wonder investment is pouring into the industry. A report, published in March by the advisory firm International Data Corporation (IDC), estimates that global blockchain spending will reach $2.9 billion (£2.2bn) in 2019, an increase of 88.7 per cent from the previous year’s $1.5bn (£1.15bn). Moreover, blockchain spending is expected to surpass $12 billion (£9.5 bn) by 2022.
With each blockchain innovation and every institution that explores its capabilities, ease of use and accessibility will improve and accelerate mass adoption. It is for this reason that retailers who have not yet engaged with cryptocurrency and blockchain will now inevitably be compelled to do so, or run the risk of lagging behind competitors and losing customer loyalty.
Almost a dozen years on from the worst financial crisis for a generation, now industry experts are predicting the next global economic crash. It is prudent, therefore, that many financial institutions – as well as retailers – are hedging their bets and proactively exploring the use of cryptocurrencies and blockchain applications.
In the financial sector, JP Morgan generated headlines at the start of the year by announcing JPMCoin to enhance internal payments processing. Big four accountancy firm E&Y is positioning itself as an industry leader through its forays into distributed ledger technology (DLT) territory for financial and reporting purposes. Elsewhere, computing giant IBM has developed the World Wire platform for faster, secure cross-border payments.
Recent innovations built upon the base foundation that Bitcoin established have solved the challenges cryptocurrency has faced with regard to transaction speed. These have helped to improve confidence in the technology and, in turn, catalyse widespread uptake. For example, the Lightning Network, rolled out in March 2018, sits above the blockchain and opens a payment channel between users, essentially acting as a balance sheet. The result is instant payment processing with potentially limitless transactions between users before the channel is closed and the final balance is written onto the blockchain – an ideal low-fee payment gateway for frequent transactions between a merchant and customer.
Litecoin, launched in 2013, is designed for speed as well. In April 2018 a user transferred $99m (£74m) for a fee of just 40 cents (30p) – and, most impressively, the transaction took just two-and-one-half minutes. Last October, one transaction of 29,999BTC – worth $194m (£148m) – cost 10 cents and took just 30 minutes to process. This is why cryptocurrency and blockchain technology is transformational for both retailers and consumers. At the moment the financial systems cannot hope to compete with these low costs and that speed for such a large transfer.
The price volatility of the cryptocurrency markets is another concern with its own set of solutions. Stablecoins – cryptocurrencies that are tied to the value of real-world assets – foster price stability. The larger stablecoins include Tether (USDT), MakerDAO (DAI), and Gemini Dollar (GUSD). Furthermore, IBM has recently signed six of its banking clients to issue their own stablecoin and to use the cross-border payments cryptocurrency Stellar Lumens (XRP) on their bespoke platform: World Wire.
With a decade of industry-use under its belt, and many of the initial creases ironed out, where do retailers and consumers fit in with cryptocurrency payments and blockchain business solutions?
Perhaps unsurprisingly, cryptocurrency and gaming go hand in hand. The gaming industry has officially surpassed Hollywood in revenues, with experts predicting a global market worth of $128bn (£96bn) by 2020, and it is primed for cryptocurrency use. Most crypto game coins including Game Credits (GAME), Enjin coin, and Ethbet (EBET) are used for the in-game economy where players use coins to purchase game content, for peer-to-peer trading, or for placing bets.
Beyond gaming, there are whole geographical regions that enjoy the benefits of cryptocurrency daily. The most popular of these is the Swiss canton of Zug, dubbed “crypto valley”. Here, investment is centred on crypto technology, making it one of the fastest growing tech hubs in Europe. Bitcoin ATMs are commonplace inside offices and coworking spaces as are “BTC accepted here” stickers on local shops, cafes and bars. Crypto is even accepted as payment for municipal services.
Continuing on a Swiss theme, the online retail giant Digitec-Galaxius has recently accepted select cryptocurrencies for online shopping payments, signalling the go-ahead for other Swiss retailers to follow suit. Migros, the conglomerate owner, is hoped to emulate the trend in their stores, banks, gyms, and petrol stations to help spread mass-adoption across the country.
Switzerland is not the only crypto-friendly region: Slovenia, Japan, North Queensland, and Sweden have increasing numbers of merchants accepting Bitcoin Cash (BCH), the hark fork split of Bitcoin, as a payment method.
In Sweden, things are being taken a step further with the country aiming to be the world’s first to go cashless. There, fintech learning is high with cryptocurrency already being used to purchase everyday items including coffee and beer. The United Kingdom has the potential to follow this trend since, as of 2018, digital card payments overtook cash for the first time, signalling the start of the move away from physical cash in the economy. In developing countries, blockchain-backed mobile money applications provide the world’s one billion “unbankables” with both a means to transact and, crucially, an identity.
For e-commerce merchants interested in exploring cryptocurrency payments, vendors offer user-friendly solutions with secure wallets, shopping cart plugins, simple point-of-sale interfaces, and payment notifications. Retailers of all sizes are on board, with Overstock.com, Riley & Silver, Newegg, Shopify stores, Dish, Intuit Labs PayByCoin, independent merchants worldwide, and even Microsoft already accepting Bitcoin.
Being an early adopter in your field gives you a competitive edge. Accepting cryptocurrency may soon be the differentiator between brands where it bolsters awareness and loyalty while making niche markets more accessible. Excitement is high for the direction of cryptocurrency for retailers with new solutions, innovations, and use cases rapidly appearing.
For consumers, there are several well-known and user-friendly secure wallets to store, trade and make purchases using cryptocurrency funds. Upcoming releases, such as the Samsung Galaxy S10 smartphone that includes an in-built wallet for private keys and select coins, suggest that we are on the cusp of mainstream adoption. Cryptocurrency transactions are an increasingly attractive choice for both consumers and retailers – don’t get left behind.
CoinPayments is the headline sponsor at IRX which takes place on 3 and 4 April, 2019, at the NEC in Birmingham, England. Learn more about cryptocurrency at the Crypto Pavilion, with hands-on demonstrations on how to transact with cryptocurrency via the CoinPayments platform. Register today at: https://internetretailingexpo.com.
BOX OUT: Four benefits of accepting cryptocurrency payments
- Cheap transaction fees
Typically, there is up a 4 per cent free for credit card payments. With Bitcoin, and a raft of other cryptocurrencies, this amount is a low flat fee, not a percentage of the transaction. Consider how in October 2018 one transaction of 29,999BTC – worth $194m (£148m) – cost 10 cents (and took just 30 minutes to process).
- Impressive security
Thanks to the strong encryption techniques employed throughout the blockchain distributed ledger it is extremely difficult to steal cryptocurrencies. The secured nature of cryptocurrencies makes it impossible for the government to own it and hence why it is considered as a more secure way for businesses to hold their wealth.
- Elimination of chargebacks and fraud
A cryptocurrency that is underpinned by blockchain technology means that transaction are immutable. Once a consumer has paid for a product or service, the money is in your organisation’s account; it cannot be reversed – unlike credit card payments.
- Borderless transactions
Cryptocurrencies can be used by anyone in the world, wherever they are – all they need is access a computer or smartphone, and internet connection. A person in Egypt can use Bitcoins to make a payment for goods in Brazil, for instance, thereby avoided the need to exchange the currencies, which can prove very costly. Cryptocurrencies make international trade more accessible by removing barriers.