Cryptocurrency, and the underlying blockchain in particular, holds a certain amount of promise for eCommerce.
We’ve previously advised eCommerce brands to be aware of the role that the blockchain can play in fraud prevention, CRM and the customer experience. Even if some of that technology isn’t market-ready right now, you need to be thinking about how you can integrate it in the future.
What about payments, though? While brands and retailers can accept crypto payments today, that doesn’t mean it’s viable.
Maintaining the Value of Crypto Remains a Big Problem
Bitcoin is as volatile as ever in 2019, writes CNN’s Paul R. La Monica. Between the last week of June and the first week of July, the price of Bitcoin spiked to almost $14,000 before falling to $9,600 and then rebounding to just above $12,000.
A flash crash at the end of August saw around $10 billion wiped off the currency’s market value, adds The Independent’s Anthony Cuthbertson. This was the result of a 30-minute period in which the price dropped by $600.
Volatility is a significant roadblock preventing cryptocurrency from becoming a practical payment method, writes the team at Blockpit.io. Both sides lose when the price is volatile. Vendors are unlikely to receive crypto payments when the market is going up, and consumers miss out on a considerable amount of value if the price suddenly moves after purchase.
Ironically, this makes Bitcoin’s biggest strength its greatest weakness, says tech writer Kayla Matthews. While governments around the world spend a considerable amount of time making their currency as stable as possible, Bitcoin (and other cryptocurrencies) remains completely fiscally independent. Unfortunately, it’s so independent that it can’t be trusted to act as a store of value.
Even So, Most Consumers Just Don’t Use It
Very few people are likely to bother paying in Bitcoin or Ripple or any other cryptocoin. In fact, data suggests that fewer consumers would transact with those payment options now than they would have a year ago.
Reuters’ Tom Wilson noted in late 2018 that the value of transactions handled by payment processors fell by nearly 80%. More recent research by the company shows that just 1.3% of all Bitcoin transactions in the first four months of 2019 came from retailers.
It doesn’t matter which businesses are letting customers pay with cryptocurrency, The Next Web’s Yessi Bello Perez writes. Few people are going to use it as a payment method, anyway. “Bitcoin’s biggest problem isn’t that companies aren’t accepting it, [but] that people still aren’t using it.”
To their credit, many businesses have been game about adopting crypto payments. In a story for CNET, reporter Ben Fox Rubin spoke to the owners of a Chicago art gallery and a Manhattan ice cream sandwich shop, which started accepting Bitcoin payments in 2013 and 2014, respectively. Neither had many customers changing how they pay.
Why should they? Prices are volatile, and even some of crypto’s perceived advantages aren’t all that great in reality. Take the idea of privacy, for instance. Bitcoin isn’t very private at all, says economist and crypto reporter Randall Stephens. That’s because people can connect your public key to your identity.
“Ironically, once people have identified your BTC address, you actually have much less privacy than you would paying with fiat. Zero, in fact. If someone knows how much money you have, you instantly become a target. None of us want to find ourselves in that situation.”
Some Retailers Have Stopped Crypto Payments Altogether
Given all these issues, it’s small wonder that many businesses that had previously accepted cryptocurrency payments are switching off their support.
In the past two years, Expedia, Dell, Microsoft, Fiverr and Steam have stopped accepting cryptocurrency payments. Even the North American Bitcoin Conference no longer accepts Bitcoin in exchange for a ticket, reports Forbes’ Kenneth Rapoza.
The Street’s Steve Fiorillo reports that a lack of interest forced Dell to stop taking Bitcoin payments in November 2017.
It was the cost of accepting cryptocurrency that did it for Steam, former Mashable reporter Monica Chin writes. Transaction fees were hard to calculate, but the currency’s volatility also meant the platform wouldn’t be able to update its pricing quickly enough.
Even online payment processor Stripe has stopped supporting Bitcoin transactions. Rising transaction fees were the major cause, explains Ars Technica’s Timothy B. Lee. As the cryptocurrency gained popularity and congestion increased, transaction fees approached $34, Lee reports. Even when transaction fees fell to $5, they were still unsustainable for all but very large purchases.
Most Businesses Aren’t Holding Cash in Cryptocurrencies
One of the only ways that companies can minimize the risk associated with price volatility is to exchange cryptocurrency for fiat currency immediately, says Sage’s Stacey McIntosh.
“Most companies use a third party firm, such as BitPay or Cryptopay, to directly access the cryptocurrency market and instantly convert payments into centralised money. By not instantly converting cryptocurrency payments, you’re essentially gambling with your revenue.”
The fees that these platforms charge businesses can be prohibitively expensive, particularly for microtransactions. Bitcoin journalist Avi Mizrahi points out that BitPay fees on a Bitcoin transaction can be as high as 26%.
Other payment processors are starting to emerge, however. One in particular is allowing more brands to start accepting cryptocurrencies, says Fortune’s Jeff John Roberts. A partnership between payment processor Flexa and Gemini, a digital currency company owned by the Winklevoss twins, is bringing Bitcoin to Whole Foods, Nordstrom, and Crate and Barrel.
Customers can use Flexa’s app, Spedn, to pay for their goods at participating retailers, much in the same way they would use Apple Pay. The retailer will receive the payment in real time and can choose whether to receive payments in a fiat currency or in crypto.
Will Facebook’s Libra Offer a Solution?
Facebook’s new Libra coin could potentially change the face of eCommerce, according to Social Media Today’s Andrew Hutchinson. Libra is being positioned as a rival to Visa and Mastercard, and a way to transfer money across borders more quickly and more cost-effectively than current options.
What’s different about Libra is the promise of stability. Libra will be governed by the Geneva-based Libra Foundation and up to 100 partners, who will act as nodes on the blockchain, explains Recode’s Theodore Schleifer. These partners will invest $10 million each for a seat at the table, and the resulting $1 billion will be used to manage a reserve of the cryptocurrency, which will help to keep it stable.
This stabilizes Libra’s value, The Verge’s Elizabeth Lopatto writes. Libra’s value will be pegged to a group of fiat currencies and bonds. This should theoretically make it even more stable than a fiat currency like the U.S. dollar.
Whether people will use it is another thing. In a survey of 1,799 U.S. adults conducted by CivicScience, only 5% expressed interest in Libra.
It would be pointless for eCommerce managers to rush to integrate cryptocurrency payment options into their offering. Crypto could become a viable payment alternative in the future, especially if uptake on Libra is high, but that’s not currently the case.