Payment services like PayPal and peer-to-peer Venmo have made the process of making and receiving payments much easier at the individual level, important in a world that sometimes moves at warp speed. These services act as a simplistic alternative to traditional banking but the phrase, “You pay for the convenience” certainly applies here. PayPal and Venmo work directly with banks and credit card companies to process payments and often pass those fees on to the customer. When paying for an item using PayPal, there is no transaction fee as long as the shopper uses their bank account to fund the payment. However, if a shopper pays by debit or credit card, a fee of almost 3% in addition to $0.30 per transaction is charged. With little exception, transferring money internationally costs up to 2% if funded directly by a bank account. Using a credit or debit card to transfer money internationally? You’re likely to get charged between 3% and 6% plus a fixed transition fee. While payment services offer convenience, sometimes it feels a bit like a shell game. We know there’s a fee in there somewhere, we just don’t always know where it is. We take the bait, with or without fees. Convenience is a powerful lure.
Cryptocurrency Enters the Ring
A poll in 2016 surveyed participants on their awareness of cryptocurrency—specifically, Bitcoin. Approximately 70% had heard of cryptocurrency, but only a mere 30% said they may use it or are already using it. Bitcoin is the darling of the cryptocurrencies, garnering the most headlines. While Bitcoin was created as a currency, it’s often portrayed as a hot investment, churning out overnight millionaires. Bitcoin and Ether are the most well-known of the cryptocurrencies. “Altcoin” refers to any currency notBitcoin—Ripple, Litecoin, Dash and Monero. That may change as other coin currencies get their comeuppance. While cryptocurrency has many bonuses, it’d be remiss to not mention blockchain technology. Often Bitcoin, blockchain and the endless possibilities of wealth are in the news at the same time, giving the impression that cryptocurrency is money. So, are Bitcoin and the other cryptocoins truly money? Things can be cloudy in the cryptocurrency landscape. Even the World Economic Forum asks, “Is it a currency, commodity or technology?”
The Business of Blockchain
While still early in the B2B game, corporations are turning to Bitcoin and Ethereum for another reason—blockchain. Blockchain technology is a decentralized public ledger, distributed across millions of computers. All cryptocurrency runs on blockchain, however, not all blockchains are created equal. The Ethereum blockchain, which supports the Ether coin, is stealing its fair share of headlines lately and rightfully so. Ethereum is an open source blockchain whose popularity is due in large part to its comprehensive smart contract capabilities. Smart contracts are applications meant to automate a variety of transactions, reduce fraud and satisfy contract terms (such as payments). The potential of Ethereum blockchain was likely a driving factor in the formation of the Enterprise Ethereum Alliance (EEA) in March 2017, which includes Toyota, Merck, Microsoft, Intel and other Fortune 500 corporations. John Hancock Financial applies Ethereum blockchain when onboarding new clients. As technology develops, no doubt an abundance of uses for smart contracts will come to light.
Cryptocurrency and its companion technologies are complex concepts for many of us, let alone the average consumer hoping to simplify life with easy payments. While they may not need to understand mining, distributed ledgers or smart contracts, consumers can benefit from understanding how it works for them before they stick their toes in the cryptocurrency waters.
For starters, Bitcoin and other coins are perceived by many as another payment system. A summary of cryptocurrency balances and transactions are held in a coin wallet—an app, really. A person can send and receive payments using their assigned address which is kept in the wallet. VISA Shift and Bitpay are two companies offering debit cards tied to a consumer’s cryptocurrency account. These debit cards can be used to withdraw cash from a standard ATM. The dollar amount withdrawn is deducted from the consumer’s cryptocurrency balance. The FDIC insures US bank account holders up to $250,000. Many cryptocoin wallets insure customers’ funds for the same amount, often keeping part of the account in offline storage.
While it’s likely that the move to familiar looking bank-like transactions is an effort to increase adoption of the “new money,” those bank-like transactions come with fees and restrictions that compromise the original intent of Bitcoin, including the promise of much lower interest rates on transactions. Partnerships with banks and payment companies, the use of standard ATMs and debit cards issued from big name financial institutions may give the everyday user the impression that cryptocurrency is just another way to bank.
Cryptocurrency as a Payment Method
Bitcoin and altcoin are meant to be safe, secure, simple and save money all around. The process to purchase and use Bitcoin or altcoin seems straightforward:
- Using a smartphone, download a coin wallet from the Apple Store or Google Play. (Note that not all wallets support all currencies but many support multiple currencies.)
- Enter a payment method to purchase your cryptocurrency (debit card, bank transfer).
- Purchase the currency of your choice using dollars (in the US).
- Enter any other information required, such as an email address.
Your coin wallet will generate an address for you. If you already have an address, simply enter it into your wallet. It’s not uncommon for wallets to generate a new address for each transaction for security reasons.
To make a purchase, visit a merchant that accepts Bitcoin or your chosen currency and pay using a payment method in your coin wallet—usually a scannable code.
Some wallets work with multiple cryptocurrencies, have a built-in exchange to various government-issued currencies, list the latest altcoin exchange rates in real time and even have location features to let you know where you can spend Bitcoin near your current location. These features are typically found in your wallet’s dashboard.
The list of retailers accepting Bitcoin includes some heavy hitters: Virgin Atlantic, Subway, OKCupid, Steam, Game Stop and Overstock.com to name a few. Inquiries to several in-store retailers on that list confirmed that Bitcoin was not accepted after all.
Online retailers seem prime for altcoin and Bitcoin purchases, however an online transaction with a company listed as accepting Bitcoin was surprisingly buggy, and involved copying and pasting my coin address between two apps. Additionally, a third-party payment processor was required to complete the transaction, however, no fee was charged to me in that transaction. A second online transaction involving another company on the Bitcoin list a bit better, although I had to copy and paste my address again. A third-party payment processor was involved in the second transaction. This time, I was charged a $1 transaction fee on top of my Bitcoin fee—which surprised me. With high security being one of the hallmarks of cryptocurrency, copying and pasting my address between apps seemed like a vulnerability. A third peer-to-peer transaction went smoothly and there was a nominal Bitcoin transaction fee. Overall, the two purchases took considerable time and troubleshooting. Groceries and filling up a car’s gas tank are not practical uses for day-to-day coin use when paying directly from a cryptocurrency wallet.
Debit Cards for Daily Use
Resolving the ‘lack of merchants accepting cryptocurrency’ issue are big-name debit cards. VISA and MasterCard both offer debit cards tied to cryptocurrency accounts. You can now buy just about anything you need with a VISA or MasterCard tied to your coin account. Any merchant accepting debit or credit cards will accept your cryptocoin debit card as well. Merchants accepting the debit card are paid in standard currency. The amount is deducted from the cardholder’s cryptocurrency account. Debit cards are more widely available for Bitcoin. Payment for purchases or services are generally available in USD and EUR.
Use of a debit card is a step closer to banking and another step further away from decentralization, one of the tenets of Bitcoin. Turning over cryptocurrency to a financial institution is a step toward centralization. Additionally, debit cards come with fees for card issuance, ATM withdrawals and more. While the debit card makes daily life with cryptocoin much more maneuverable, the consumer is moving away from the essence of cryptocurrency.
For the Good of Mankind—Really
Today, cryptocurrency use for the average consumer is limited. Currently, debit cards (crypto or traditional) are the best option for dining out, online shopping and a quick stop at a favorite coffee shop. Debit cards work. So the question begs—why change what already works? A valid question for sure.
Cryptocurrency is thrillingly exhaustive with its many tentacles of technology: blockchain, hashrate, nodes and multisigs. To many it is a far-off idea, concept or just an inkling. The reality is that cryptocurrency has the potential to change the face of global economies. It’s lauded for fraud prevention, anonymity, global access, international use, lower fees and self-ownership of money. Currently, a bank or government can seize a person’s assets. No so with cryptocurrency.
While cryptocurrency is a positive in the global column, it starts with the individual. The individual will adopt cryptocoin through great customer experience and understanding of the basics. Word of mouth can never be underestimated. When one person has an ongoing beneficial experience with cryptocurrency, the movement will begin. For the customer to have that experience, merchants, retailers and service providers must take the first step and offer this form of payment—without tangling up consumers in fees. Businesses must invest in these new currencies. “We accept altcoin” is the new welcome sign for everyday customers.