Cryptocurrencies have gained immense popularity lately. Many multinational enterprises have already dipped into this new digital playing field with several others soon to follow, a move that could significantly boost the use of digital assets in everyday e-commerce.
Tesla, an electric vehicle company, accepts Bitcoin in payment for its electric cars.
Rakuten, a Japanese e-commerce giant, allows users of the Rakuten Wallet to use cryptocurrencies to pay for purchases through the company's Rakuten Pay and Rakuten Cash ecosystems without fees.
Square, a digital payments provider, allows users of its Cash App to transact in Bitcoin without paying fees.
Mastercard, a payment network processor, disclosed its plans to let merchants accept select cryptocurrencies through its network.
Customers who hold Bitcoin, Ether, Bitcoin Cash and Litecoin in their PayPal (an online payments provider) digital wallets will now be able to convert their holdings into fiat currencies at checkouts to make purchases.
Whatever your opinion on cryptocurrencies, it is a fact that these digital assets are becoming a more critical part of the payments world.
That been said, many retailers may be wondering if cryptocurrencies are ready for e-commerce.
Cryptocurrency and e-commerce have the potential to complement each other quite nicely, being both global and centred around tech. But at the same time, cryptocurrency assets will need to offer the stability consumers need in a vehicle for spending and not merely for investment.
So, is the e-commerce market ready for cryptocurrency? In this article, we present you the benefits of using cryptocurrencies in e-commerce, followed by the reasons you might want to avoid them. But before digging into that, it might be first worth looking into what a cryptocurrency is.
What is a cryptocurrency
A cryptocurrency is a digital currency in which transactions are verified and records maintained by a decentralised system using cryptography rather than a centralised authority like a central bank.
After verifying, transactions are usually distributed on a blockchain (a distributed ledger enforced by a disparate network of computers) as a public account of records.
Cryptocurrency is not controlled by any government or central bank, and it allows for direct exchange amongst its users.
A wallet is a software program in which cryptocurrencies are stored. For every individual who has a balance in a wallet, there is a private key (secret code) corresponding to the address of that wallet. Wallets facilitate the sending and receiving of cryptocurrencies and give ownership of the balance to the user.
Cryptocurrencies hold the promise of making it easier to transfer funds directly between two parties, without the need for a third party like a bank or credit card company.
Fund transfers are completed with minimal processing fees, allowing users to avoid expensive fees charged by banks and card processors.
How to accept payments with digital currency on your online shop
When accepting payments for purchases with cryptocurrencies on your online shop, you have two choices. Either you can accept payments directly to your digital wallet that can be stored on a computer, smartphone, or hard drive or through third-party services like Coinbase Commerce or Bitpay.
Canadian e-commerce platform Shopify supports payments in cryptocurrencies through integrations with various crypto payment providers. Similarly, e-commerce merchants using Magento, an open-source e-commerce platform, have options such as BitPay, CoinGate, and more.
The benefits of using cryptocurrency in eCommerce
Accepting cryptocurrency as a payment method will give you access to a whole new market of the ever-growing community of people using cryptocurrencies across the world and help you build loyalty with existing customers who want this additional option.
Also, cryptocurrencies can be used in every country of the world without adapting prices or currencies, making global expansion far more efficient for your e-commerce businesses.
Unlike bank or card transactions which can take a few days to process, cryptocurrency is processed almost immediately. That gives you instant access to funds and help streamline your businesses cash flow.
Lower transaction fees
One of the biggest problems for e-commerce retailers is the amount of fees they have to pay per transaction for credit cards and other payment methods.
One of the benefits of offering cryptocurrency as a payment method is the low fees associated with each transaction. Although the fees can range depending on whether you accept cryptocurrency to your wallet or through a third-party provider like Coinbase, they are significantly less than the fees of services of credit card providers or the various card processors you might use for your online store.
Improved transaction security
Cryptocurrencies reduce the risk of fraud in digital transactions. Due to the blockchain, it is exceedingly difficult to counterfeit and reuse each currency or cancel a transaction once it has been completed without the retailer's consent. This also eliminates your chargeback costs. Moreover, the encryption technology used by cryptocurrencies also offers a greater level of security for your customers' data.
Reasons to avoid cryptocurrencies in eCommerce
The market value of cryptocurrencies fluctuates erratically, mainly due to the nature of cryptocurrency exchanges and additional coin mining. Understandably, that is creating uncertainty for users and businesses and could potentially make things quite complicated in the case of returned items.
Let's say a customer buys a product from your brand for x-amount of a specific cryptocurrency and wants to return this item a week later. Most probably, the value of the cryptocurrency has fluctuated during this time, so how many coins would you return to them?
To overcome volatility, the cryptocurrency industry has created stablecoins, a type of cryptocurrency with its value tied to a more stable asset such as a fiat currency or gold. However, stablecoins are not yet widely adopted.
Lack of trust, security risks, and upcoming regulations
One of the main reasons preventing the mainstream adoption of cryptocurrency in e-commerce is the lack of trust surrounding it. The semi-anonymous nature of cryptocurrency transactions makes them well-suited for illegal activities, such as money laundering and tax evasion. Influenced by fears of illegalities, it is uncertain whether consumers will use cryptocurrency as a payment option if widely adopted.
Moreover, contrary to stolen credit cards and bank accounts where the issuer or bank will return the owner's money (unless the account holder was negligent), stolen cryptocurrencies are gone forever. Cryptocurrency blockchains are highly secure, but other aspects of a cryptocurrency ecosystem, including crypto exchanges and digital wallets, are not immune to the threat of hacking.
Then, there is the issue of coming regulation. Governments won't be able to ignore cryptocurrencies for much longer. Several countries are in the early stages of creating their national cryptocurrencies, called CBDCs (central bank digital currencies). Many national or local governments will most definitely start to tax, ban, limit, or control cryptocurrencies shortly.
Although the commercial use of cryptocurrency has many advantages, there are some considerable risks associated with it that are currently preventing its mainstream adoption in the e-commerce sector. Our advice is that online retailers should let the dust settle before making a move in that direction.
Nevertheless, e-commerce businesses should closely monitor news about cryptocurrencies and create a contingency plan for easy implementation if they become more widely adopted and standardised as a payment method.