The world of finance is undergoing a significant shift. With the fast development of blockchain technology and the adoption of cryptocurrencies, businesses are also catching up with the changing finance sphere.
A growing number of businesses worldwide use Bitcoin and other digital assets for various investing, operational, and transactional objectives. According to an estimate from late 2020, more than 2,300 US companies accept Bitcoin, which does not include Bitcoin ATMs. In 2019, AT&T became the first mobile operator to accept cryptocurrency payments.
A study by Deloitte revealed that nearly 75% of retailers plan to accept either cryptocurrency or stablecoin payments within the next two years. PayPal, Starbucks, United Airlines, Amazon-owned retailing shop chain Whole Foods, and the largest hardware store chain Home Depot are well-known names in the commerce industry that have already started to accept cryptocurrency payments. According to reports, the Spanish airline Vueling will also introduce cryptocurrency as a payment method in 2023.
Despite prominent businesses starting to accept crypto payments, many companies still shy away from using this frontier technology. In this article, let’s take a closer look at the advantages of crypto adoption and the potential risks for businesses.
Benefits of Crypto Adoption
Cryptocurrency offers several advantages over traditional payment methods, which makes it well-suited for transactions.
1. Lower transaction fees and increased security
One of the benefits of cryptocurrency payments is lower transaction fees than credit cards or other traditional payment methods. Because blockchain technology is decentralized, the absence of a third-party intermediary significantly reduces transaction fees.
Web 3.0 payments are a form of decentralized finance (DeFi) and use secure ledgers to process the management of funds. Automating transactions and money exchange is possible through the core feature of blockchain, smart contract protocols.
Lower transaction fees are of great importance for small businesses. Using credit card payment services most of the time implies a fee for each transaction, which adds up costs. Credit card processing costs, excluding merchant service provider fees, can vary from 2.87% to 4.35% of each transaction.
Another advantage of using cryptocurrency for payments is increased security. With blockchain technology, payments are encrypted and stored on a secure, decentralized ledger. Decentralization makes it much more difficult for hackers to steal or tamper with payment information.
2. Faster cross-border transactions
The high speed of transactions is also a big benefit. Blockchain technology allows for near-instantaneous payments compared to traditional payment methods, such as credit cards and bank transactions, which are slow. It especially applies to international payments that have always been complicated and inefficient, resulting in lengthy and expensive payment processing methods.
The need for cross-border transactions for business is increasing. According to estimates, worldwide cross-border payment flows are estimated to hit US$156 trillion by the end of this year. The noticeable increase in the volume of international payments can be attributed to the growing business focus on emerging markets in Asia, Africa, and Latin America.
On the other hand, developing countries are particularly receptive to fintech development, as many people in these regions lack accessible banking services. An estimated 2 billion individuals worldwide do not have access to formal banking services. The available services are often time-consuming and costly.
3. Access to new demographic audiences
The transaction volume in the cryptocurrency industry has increased since 2020. According to Chainalysis, the volume of crypto transactions grew to $15.8 trillion in 2021, representing a 567% increase over 2020.
The increasing numbers indicate that crypto consumers are beginning to rely on cryptocurrency daily. With a much more significant transaction volume, cryptocurrency and blockchain technologies are undoubtedly changing the payment landscape for businesses.
An additional plus for businesses is that adopting cryptocurrencies may provide access to new demographic groups. According to research, up to 40% of clients who pay with cryptocurrency are new customers, and their purchase quantities are double those of credit card users. Consequently, providing crypto as a payment method can help businesses tackle different clientele groups.
Crypto may also help small businesses to grow and open their doors to foreign consumers who could not previously access their products and services due to geographical constraint.
Challenges Related to Crypto Adoption
Despite the advantages that crypto adoption can bring business, there are some challenges to face. One of them is that cryptocurrencies and DeFi are still vaguely regulated. This regulatory framework protects investors and preserves the market’s stability.
Without the safety net provided by institutions, investors and crypto holders are taking the risk of entrusting their funds to fraudulent players. They are also not protected against significant crashes in the market, as happened this year when major crypto broker firms filed for bankruptcy.
Also, cryptocurrencies are highly volatile in price. This poses the highest risk, as it is hard to determine the value of digital currencies. Bitcoin, for example, was once priced at $5 in 2009 but rose to more than $65,000 per coin in February 2021.
Another major challenge is the technical barrier that may form an obstacle to some businesses adopting cryptocurrencies. Accepting cryptocurrency involves the setup of a digital wallet on a digital currency exchange, which may be technically challenging for small company owners who need to gain experience with the technology. The crypto sector is known to have a relatively high learning curve, which can be a considerable barrier.
For example, the e-commerce sector, to accept crypto payments, would need to use third-party payment processors. Using merchant service companies, such as Bitpace or Coinbase, helps to simplify the process for merchants to adopt crypto payments.
Such platforms enable e-commerce owners to integrate the crypto payment gateway into their online shops, allowing them to receive and withdraw both fiat and cryptocurrencies without prior technical knowledge or coding skills.
The Future of Crypto Payments
The nascent technology is still in its initial stage. However, as crypto regulation is developed further and becomes more established worldwide, confidence and stability are both bound to improve. Blockchain technologies will increasingly underpin the growing demand for mobile solutions and boost online transactions.
While the ongoing crypto winter raises skeptical questions, the industry pioneers remain optimistic and forecast that cryptocurrencies will transform the payments industry in the next ten to twenty years. While some challenges are still associated with using crypto for payments, time will tell if this technology can truly change how business payments are made.
On the Flipside
- The crypto market is highly volatile and unregulated, which might pose a risk to investors. Also, as the blockchain sector has a high learning curve, it might pose an entrance barrier to a complete newbie to the technology.
Why You Should Care
A study by Deloitte revealed that nearly 75% of retailers plan to accept cryptocurrency or stablecoin payments within the next two years. Many well-known businesses are already starting to accept crypto payments. The increase in crypto transaction volume shows that customers are beginning to bet on crypto for daily transactions. The changing financial scene therefore affects both businesses and consumers.
Read more about paradises for crypto payments:
Top 10 Cities that are Hotspots for Crypto Payments
Read more about workarounds that crypto users avail of:
Crypto Users Search for Workarounds for Making Payments