For a long time, all cryptocurrencies were low-key, and the news outlets were just trying to understand what was going on with this new trend and how it would change the way we consume products. But, after the crypto market capitalization skyrocketed last year from $30B in April to $640B in December (a 2100% increase), everyone went crazy. With Bitcoin (BTC) taking the lead, accounting for more than 51% of the entire cryptocurrency market, we saw a lot of people buying in, businesses accepting Bitcoin as a payment option, and the topic trending in all possible media channels.
From a trader’s perspective, it’s a dream come true. Who doesn’t want to score over 1000% in profits in just eight months? It’s easy to guess the answer. But with a lot of unanswered questions and without knowing the future of this new currency/asset/product, what should the market expect from it? And most importantly, what should businesses expect from it?
To help you understand the impact of cryptocurrencies in the payment industry, I’ll explore a few relevant points, as we still wait to see what this new technology will bring.
So, what is cryptocurrency?
In a straightforward definition, cryptocurrency is a digital currency that uses the blockchain technology to transfer encrypted information between two wallets. Its most significant difference from a wire transfer, for example, is that a cryptocurrency is an anonymous peer-to-peer transaction, where funds are transferred without passing through a third-party institution such as a bank, and it does not carry any personal information. And, because there’s no mediator involved, transactions should be faster and cheaper. Theoretically.
Concerning merchants, it’s important to point out that since cryptocurrencies are decentralized currencies, allegedly not connected to any country, there are no barriers for transactions to happen overseas. It decreases costs when transferring funds from one country to another and it has a significant impact if you want to scale globally.
The most significant cryptocurrency disadvantage now is how fast their prices change. It’s the biggest reason why companies are reluctant on adopting cryptocurrencies as a means of transactions. Whenever you’re selling something, the last thing you want to see is the value of that product going down, leaving you with less money as expected.
Let’s say you have a full-service restaurant and you’re selling a burger with fries for a BTC equivalent amount of $18. While this article was being written, the price of BTC had moved 25% within 2 days. Taking into consideration that the average full-service profit margin is 6%, your business would be short by 19%, and it’d take three months for it to recover from a 2-days hit. With this uncertain scenario, it’s hard for businesses to accept high-volatile cryptocurrencies and still make money out of it.
Aside from its volatility, one of the cryptocurrencies’ biggest strengths is that there isn’t an exchange of personal information. Ultimately, you would have no data to steal, saving you and your business endless headaches and image damage.
From a restaurant perspective, cryptocurrency solves a huge industry issue. Take what happened with Chipotle a year ago as an example. Credit card data from customers was stolen after a malware had hacked more than 2,200 of the company's restaurants. If you use a type of transaction where you don’t hold customer’s personal information, there would be nothing to be stolen. And in Chipotle’s case, this would have saved them the millions of dollars it took to restore their brand's image.
Tax and Regulations
As a merchant, you need to know the taxes and fees you’ll have to pay for using any service to run your business correctly. But since users, financial entities and even governments are still struggling to agree on how to define it, the true cost of accepting BTC is still not very clear. The expectations are that once its volatility decreases, you would pay fewer fees when using it to buy supplies instead of using credit cards or transfers through a bank account.
However, because cryptocurrency adoption is growing fast, some companies are acting to prevent any losses from the uncertain future. Last month, both Visa and Mastercard reclassified cryptocurrencies purchases. When using debit or credit cards to buy Bitcoin or any alt-coin, users should see now “cash advance” instead of the standard “purchase” denomination. Because of this change, this transaction now has a fee increase of 5 percent.
There’s still a lot to be discussed related to the cryptocurrency market and how it will affect customers and owners in the future. Everyone will always try to cut down costs and improve security, and these are the two main selling points of any cryptocurrency. Privacy is vital for any type of data transfer nowadays, and we’ve seen many companies and governments pushing for safer technologies. Whilst everyone tries to figure how to use cryptocurrencies, the biggest skepticism is not knowing if it will become the next form of transactions, or if it’s just another tech bubble that will burst sometime in the future.