The world of cryptocurrency is constantly changing. From the wild swings in value to imaginative new use cases for the currency, the industry is moving at a faster rate than anyone could imagine. Since Bitcoin has been in existence, it has been used as the standard payment model in ransomware attacks all over the globe, but it has also evolved as an important means to transfer value that many technology companies have helped enable. One of the most recent examples comes from AMC and their announcement that they will start accepting Bitcoin and other cryptocurrencies as a means of payment for movie tickets and concessions by end of 2021.
This recent development in cryptocurrency as a means of payment (online and in-store) has encouraged a lot of merchants to ask us: should I care about accepting cryptocurrency in my business? And the general answer we give? “It depends.”
What is Cryptocurrency?
A cryptocurrency is a digital token that exists within a system usually consisting of a P2P (peer-to-peer) network, a consensus mechanism, and public key infrastructure. The transaction history can be verified by everyone as they all have access to a copy of a shared ledger in the form of a long chain of blocks holding information about every transaction (hence the term “Blockchain”).
Bitcoin was the first decentralized cryptocurrency, and it was first released as open-source software in 2009. Since its inception, many other cryptocurrencies have been created.
What Are the Different Types of Cryptocurrencies Out There?
There are mainly two categories of cryptocurrency – Crypto Assets and Stablecoins.
1. Crypto Assets
This includes Bitcoin and Etherium whose value is based on demand. Their pricing is volatile and there is always a conversation in the media around the dramatic changes in their value. Crypto assets present three main challenges:
- Efficiency: The process of confirming a transaction and updating the ledger (in Bitcoin) demands huge amounts of computing in a process referred to as Mining and it has a tremendous environmental impact.
- Anonymity: While there is a detailed audit trail of transactions, there is no data held about the transactor or the purpose of the transaction. Many crypto wallets require no personal data to establish an account. Therefore, cryptocurrencies can be an easy way to move large sums of money (value) anonymously, making anti-terror and anti-money laundering very challenging.
- Speed: Especially for consumer-level payments, cryptocurrency mining is not fast. It can take anywhere from 10 minutes to an hour for a transaction to complete. As a result, if a consumer wants to pay in a store with a Bitcoin, a merchant will need a middle player to confirm and underwrite the transaction. Otherwise, the consumer could be stuck there for up to an hour! Called a Crypto-PSP (Payment Service Provider), these companies act like currency exchange brokers, taking the risk on price volatility and fraud in return for a fee. This works well but can prove very expensive relative to the cost of a simple card transaction.
These are digital coins whose value is based on an external standard such as a strong currency or gold. The most talked-about type of Stablecoin is Central Bank Digital Currency (CBDC) which, as the name suggests is issued by the central bank of a given region and pegged to the price of the local currency. Bermuda was the pioneer of this, but initiatives are at least being considered in most countries. Stablecoins offer many of the advantages of cryptocurrency but without much of the risk.
Should Merchants Accept Cryptocurrency?
Cryptocurrency is a radical opportunity to rethink the way we move value around the world. The principle of a shared ledger opens the potential to significantly streamline models which, whilst heavily developed, were originally designed to support the movement of physical cash and commodities. However, there are challenges in terms of efficiency, anonymity and speed.
Stablecoins bring a level of stability into the market and have clear value in situations where transactions are especially complex such as international money transfers.
When it comes to the point of sale (POS), it is less clear what the impact might be. In the short term, it seems that most of the thinking is centered on the principle that crypto is “just another currency” – not significantly different from accepting Dollars, Euros or Pesos from an international traveler. Today, most cryptocurrency is in the form of more volatile denominations such as Bitcoin, etc. For the merchant, offering cryptocurrency payments at the point of sale (POS), while slow right now, maybe important for the luxury goods, millennial-oriented and high-end hospitality sectors. But it is still very early days and we will continue to write about the market as it starts to develop and mature.
If you have more questions about cryptocurrency and how it applies to in-store payments, ask us in the comments section or drop us a line.
Ian Benn is Head of Strategy and Market Development at Ingenico, a Worldline Brand