Should the eCommerce World Be Preparing for a Crypto Revolution?
Dubbed by many as “the dynamic duo of the internet”, e-commerce and cryptocurrency occupy the same digital world. Although their full potential is yet to be determined, this article will explore the huge possible implications of this relationship and the factors that e-commerce brands should consider before integrating crypto payments into their site.
The Dynamic Duo
Over the past few years, the term “cryptocurrency” has firmly lodged itself into the public consciousness. Known by many but understood by few, the technical aspects of these new digital currencies remain impenetrable for much of the public. Nonetheless, there is a growing sense that they will dramatically alter how we understand and interact with money.
Whilst e-commerce has been a significant feature of the digital world for many years, the pandemic has accelerated the growth of the global e-commerce market immensely (from $3.354 trillion in 2019 to $4.981 trillion in 2021!). With people stuck inside for extended periods over lockdown, online business boomed, and it looks like this trend will only continue.
What Is Cryptocurrency?
Cryptocurrency is a digital currency that relies on complex encryption. Rather than being regulated by a centralised authority in the way traditional currencies are, cryptocurrencies use a decentralised system to log and verify transactions. In other words, all transactions are conducted peer-to-peer rather than being overseen by a government or bank.
Cryptocurrencies use something called distributed ledger technology (DLT) to keep a public record of all transactions. Blockchain is the type of DLT used by most cryptocurrencies to synchronise and share data throughout this decentralised database. Instead of one central authority keeping track of all the balances, every single entity in the network has a full list of transactions to check the validity of any future transaction (and to prevent double-spending).
Click here to find out more about how blockchain technology works.
The Current Role of Cryptocurrency in E-Commerce
Cryptocurrencies have unlocked a new way to make transactions and have thus provided online retailers with a new payment method option. In fact, a handful of major brands, marketplaces, and payment processors have already begun accepting cryptocurrency as payment:
PayPal launched “Checkout with Crypto” in March 2021, a feature that allows its US customers to pay online retailers using their crypto coins. All cryptocurrencies can be stored directly within the PayPal digital wallet and are converted to fiat currency at checkout with no additional transaction fees.
In partnership with crypto-friendly travelling booking platform Travala, Expedia has begun accepting payments for over 700,000 hotels and accommodations with (more than 30) cryptocurrencies.
eBay announced earlier this year that they would be open to the possibility of accepting cryptocurrency as a form of payment in the future. In their own words, it is “something we are keeping an eye on”.
Examples of other retailers and e-commerce brands that are currently considering/accepting cryptocurrency can be found here.
Why Should Your E-Commerce Brand Adopt Crypto Payments?
Lower Transaction Costs
The cost of blockchain transactions is noticeably lower than the transaction cost of traditional e-commerce. When brands process through Stripe or Square, they pay an average of 3-5% on each transaction, compared to cryptocurrency transactions which are typically about 1%. In theory, then, incorporating crypto payments into your e-commerce site should increase your online profit margins.
The amount of people that hold and use cryptocurrencies across the world is constantly growing. Adapting your platform to allow people to pay using their crypto wallet could widen your target market and lead to an increase in new customer traffic. Early adoption of crypto payments may enable you to get ahead of your competitors and gain the loyalty of this consumer base before others do.
Since there is no central control that can withdraw funds from someone’s account without their consent, the risk of fraud and cyber-attacks is massively reduced when using blockchain technology. By reducing the likelihood of these security breaches, taking crypto payments may help with the public perception of your brand.
There are also plenty of risks associated with integrating crypto payments into e-commerce. This process would require institutional changes to the way online payments are done, as well as the displacement of centralised control systems. Thus, it is important to identify some of the potential drawbacks of cryptocurrency before we consider such a dramatic shift:
The market value of cryptocurrencies is notoriously volatile, making it far less reliable than fiat currency. This uncertainty poses a problem for both businesses and consumers alike. Consider a scenario where a customer buys a product or service for x amount of coin and then wishes to return it a month later. During this time, the value of the coin has increased/decreased dramatically. Now x amount of coin is not in line with the new market value, and so how much coin would the seller have to return to the customer?
There is undoubtedly still a lack of public trust surrounding cryptocurrencies, partly owing to the inaccessibility of the technical mechanisms that underpin them but also owing to media scepticism. Whatever the source of distrust, adopting crypto payments will not yet give you access to a large, untapped consumer market.
High-powered computers that use massive amounts of energy are required to “mine” coins (the process by which new coins are brought into circulation). For example, it was recently announced that Bitcoin consumes more electricity each year than Argentina. Especially due to the increasing number of eco-conscious consumers, attaching your brand to a large carbon footprint could affect your image. This is something that Elon Musk is evidently conscious of. Following Tesla’s $1.5 billion (£1.1 billion) Bitcoin investment, the business magnate recently pledged to not carry out any Bitcoin transactions until over 50% of tokens are mined using renewable energy.
There are undoubtedly plenty of barriers to the mainstream adoption of cryptocurrency in the e-commerce world. Equally, however, it has the potential to revolutionise and streamline the entire online payment process.
Whether or not you are convinced by the idea of accepting crypto payments on your e-commerce site, make sure that you keep up to date with this trend and that you are ready to adapt your strategy at any given moment.