With the global shift from cash to digital transactions, the world’s largest cryptocurrency, Bitcoin, was the first digital currency to launch in 2009, with intentions of becoming the future of money.
As with any revolutionary technology, people were unsure whether to adopt it or not. However, over time, Bitcoin has become the most widely used and well-known type of digital currency. It paved the way for more than 20,000 other cryptos that are now accepted as payment by many major companies.
The trend of allowing online shoppers to purchase goods using cryptocurrencies (crypto) is not limited to any particular industry or region. A growing number of businesses worldwide are using Bitcoin and other digital cryptos for various investment, operational, and transactional goals.
Numerous industrial groups, including Starbucks, Gucci, the NBA, Coca-Cola, Microsoft, Mastercard and Visa are becoming crypto-compatible. Their decision demonstrates their confidence in the long-term viability of cryptocurrency as a global medium of exchange.
It now sets the tone and behavior to be adopted by other companies. And it’s only a matter of time before this fully trickles down to a wider range of small and medium-sized enterprises (SMEs).
Prevailing uncertainty and skepticism
Despite the increasing adoption of crypto by businesses as one of the payment options, there remains uncertainty and skepticism as to why businesses are making such a decision. I want to discuss some of the incentives and disincentives companies consider when choosing crypto as a payment option for customers.
With the growth of the crypto industry, it is no longer surprising that the adoption of digital currency cryptos is becoming increasingly sophisticated. Visa assessed demand for crypto as a payment option in January 2022 with a survey targeting nine countries: Brazil, Canada, Germany, Hong Kong, Ireland, Russia, Singapore, the United Arab Emirates, and the United States.
The survey found that 13 percent of customers in these countries expect retail stores to start accepting crypto payments this year and beyond. Additionally, another survey by Visa specific to the Southeast Asia region found that about 64 percent of consumers expressed interest in using crypto as a payment method.
As the demand and expectations for paying with crypto increase, efforts to meet that demand must also increase. Businesses need to position themselves to accept and disburse crypto to enable seamless exchanges with key stakeholders.
As the demand and expectations for paying with crypto increase, efforts to meet that demand must also increase.
Crypto adoption at an all-time high
With the pace of crypto adoption reaching an all-time high and the global population holding crypto, which has grown by around 190 percent between 2018 and 2020 and by over 178 percent in 2021 alone, this demand will allow it to be met companies to tap into a rapidly growing customer base.
Additionally, there is an upward trend in the number of businesses offering crypto payment options, indicating the existence of a market for more businesses to tap into.
In 2011, US-based company Bees Brothers decided to accept bitcoins, marking the beginning of the trend to accept crypto as a form of payment. A few years later, Overstock.com, a well-known online store, also started accepting digital money as payment.
According to statistics released by Statista in March 2021, the number of businesses in 147 countries that either have a cryptocurrency ATM or accept cryptocurrency as a payment method in-store increased from a handful to 21,980 businesses.
In addition to the current trend, the future plans and trends of the companies for crypto payments also speak. For example, the aforementioned Visa survey also revealed that 24 percent of SMEs in the nine countries mentioned above intend to accept crypto payments, demonstrating their attitude towards customers and market preferences.
Can it be expensive to miss something?
Therefore, companies that do not accept this option may miss opportunities that could otherwise be seized. Additionally, given how cryptocurrencies work and the lack of a central intermediary, crypto transaction fees are far lower than credit card swipe fees.
For example, credit card processing providers charge businesses, particularly small businesses, about 25 cents plus 2 to 4 percent of the total transaction amount for each credit card swipe. In contrast, the fees associated with crypto transactions could be as little as 1 percent or less of the transaction value.
In addition to the transaction fee, crypto can help avoid international currency payment fees because they are not tied to a specific territory. Additionally, time-consuming third-party verification is eliminated, reducing the time it takes to receive funds.
Finally, like any disruptive technology, crypto offers access to and interaction with new pools of capital and liquidity via tokenized traditional investment sources. This will drive companies and corporations to develop innovative offerings related to digital assets and attract investors willing to invest in the shares of companies that provide cryptocurrency-related services, thus gaining exposure to Bitcoin and other cryptos, without actually holding them.
Despite the increasing adoption of crypto by businesses as one of the payment options, there remains uncertainty and skepticism as to why businesses are making such a decision.
Weigh the cons of accepting crypto payments
While the potential of access to new consumer and liquidity pools and reduced transaction fees sounds enticing, businesses need to weigh the downsides of accepting cryptocurrency payments before embarking on it.
These disadvantages include the technical and talent barriers inherent in this form of payment. Setting up a digital wallet on a digital currency exchange is one of the essential requirements for accepting cryptocurrency as a form of payment.
While it sounds like one of those areas that can easily be ticked off a list, small businesses unfamiliar with this technology can find it technically prohibitive. In addition, it is a challenge to attract qualified talent that can help in the development of innovative crypto-based products and services.
If the company decides to hire internal teams, finding and recruiting the necessary talent becomes expensive. Additionally, the biggest risk associated with digital currency is price volatility, which makes its value extremely unpredictable.
For example, in 2009, bitcoin was originally valued in cents, but by February 2021 it was worth more than $65,000 (Dh238,746) per coin, and as of August 3, 2022 it is worth approximately $23,223 (Dh85,298). . This makes it imperative that companies convert the cryptos into fiat currency as soon as they receive them. Businesses must choose a trading service provider to protect themselves from this volatility by instantly converting digital currencies into their monetary value.
Not resistant to cyber security threats, crime
Even if they eliminate cyber risks like stolen credit card details, cryptos are still not 100 percent safe from cyber security threats and crime.
For example, cryptojacking grew by 28 percent in 2020, causing $82 million (Dh301 million) in losses worldwide. In 2021, global crypto thefts resulted in $681 million (Dh2.50 billion) in losses, with 76 percent of significant attacks affecting Decentralized Finance (DeFi).
What is cryptojacking?
Cryptojacking is the hijacking of a computer to mine cryptocurrencies against the user’s will, through websites, or without the user’s knowledge.
There is currently no method to prevent cybercriminals from gaining access to users’ wallets and there is no insurance for cryptos, making this a crucial consideration for businesses. However, several crypto companies are trying to rectify this by developing wallet security solutions, which can be seen as a positive.
Jawaher S
@Team_Twitter
Emirati-based author in Dubai and Fellow in International Finance and Economic Policy at Columbia University
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
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