Is cryptocurrency a viable option for ecommerce stores?
Cryptocurrency is everywhere, including ecommerce. Between Coinbase’s public listing, the sale of a $69 million NFT via Christie’s auction house, a $1.5 billion investment in Bitcoin by Elon Musk’s Tesla, and soaring valuations that make one wonder when the bubble will burst, you can’t walk to your mailbox without tripping over a social media mention about cryptocurrency. With all the hype, there’s gotta be a good reason to transfer some of your money to crypto, right?
But even cryptocurrency is a long way from being as accepted as a Visa card or even PayPal online. Part of that is a lack of education and technological integrations, but there are some serious barriers.
This article will break down the promise and problems of cryptocurrency for the ecommerce space.
The promise of crypto for ecommerce
Let’s get the promises of cryptocurrency out of the way. In addition to being the cool new(ish) tech thing that is so complicated and esoteric that only the cool nerds are doing it—which is reason enough for some folks to invest—the technology has some promise.
Crypto promise 1: Lower cost online transactions
There’s a promise of lower transaction fees for ecommerce sites. Credit card companies and payments apps like Stripe or Square will charge anywhere from 3-5% on each transaction. Many ecommerce companies build these fees into their online store prices. Cryptocurrency transactions are often feeless or as little as 1%.
Crypto promise 2: Another option for the bank-averse
There are plenty of reasons why some people don’t trust banks to hold their money. Systemic racism, lack of access, and plain lack of trust in the banking system are all reasons that people don’t use the banking system. Add on the (rightfully earned) distrust in the credit card companies, and many people find themselves working only in cash.
Many of these people will trust a network or individual (like Logan Paul) to invest their money in because they believe they can trust a YouTuber more than they can trust the faceless banking monolith. Which, fair.
Crypto promise 3: Secure transactions can reduce fraud
Perhaps most exciting for ecommerce stores is the promise that cryptocurrency can reduce fraud. Chargebacks and fraudulent returns can hurt an ecommerce company’s bottom line, and many stores plan for some fraudulent charges. The blockchain technology that underlies cryptocurrency should make fraudulent charges disappear.
The problems with a crypto ecommerce
These three main promises of adding cryptocurrency to the ecommerce tech stack look pretty good. Until you start to look at all the problems that need addressing before it becomes a viable option. We’ll try to get through these quickly.
- High price: as of publication, 1 Bitcoin = $56,433.70 USD. No, you do not have to buy an entire Bitcoin (or any other cryptocurrency), but the misconception may turn some folks off, initially.
- Not much consumer buy-in: this is still a niche currency. It’s gaining ground steadily, but as of 2019 only about 36.5 million Americans own cryptocurrency.
- Instability and volatility: while you don’t have to invest heavily to buy into any cryptocurrency, it still feels a little like gambling. Bitcoin’s price has increased dramatically over the last several years (see the image above), but as a traded commodity, its value is based on the perceived value. That makes it more uncertain than any fiat currency backed by governments. This also makes it dangerous for ecommerce companies who have to trade in fiat currency to hold all (or any, really) of their assets in crypto.
- Transactions can take a long time to verify: this may slow down the instantaneous feel of current ecommerce sites. This, of course, varies based on the crypto wallet, the site, and the currency you’ve invested in.
- High barriers to entry: for less tech-savvy individuals, understanding how crypto works can be confusing at best. At the very least, someone who uses the currency would need to be able to transfer fiat funds electronically to their wallet, which is probably going to require a bank account for ease of access. That’s a problem that will undercut the promise 2 for the bank-averse. This also assumes that to use the currency you don’t have to understand how it is mined, traded, and verified.
- Transaction verification for cryptocurrency comes at a cost to providers, and may not keep up with the high volume of transactions on ecommerce stores: this is a significant problem for ecommerce software and wallet providers, who will need to build in the systems (including energy consumption, which we’ll get to later) to back up wallets, transfer funds at preset thresholds, and generally do a lot of funds or data management to support higher transaction volumes.
- Governments don’t love the idea of alternative currency: India is the latest to try to ban digital assets (including trading, holding, and mining) in preparation to build its own cryptocurrency. The reasoning is sound: the more that people invest in an alternative currency, the less money they hold in government-backed funds, which could impact the value of the government’s investment. This issue is still developing, however, and other options like Stablecoin may provide a government-backed alternative to alternative currency.
So is cryptocurrency good for ecommerce?
For those who invest in cryptocurrency, trading Bitcoin for services should be fine. If you want to withdraw your money from Coinbase or another alt wallet, you may have to pay higher fees than you would to withdraw from a stock brokerage account. That doesn’t hurt the consumers much, but it could cause problems for ecommerce companies who need to pay their electric bills or purchase supplies.
At the same time, this is a great time for Coinbase to invest in apps for ecommerce stores. Paypal just moved to the #1 cloud company in market cap in a recent report by Bessemer Venture Partners and Shopify shifted to #4 because of the increase in online shopping caused by the pandemic. The best day to plant an ecommerce app was yesterday, but the second-best day to plant an ecommerce app is today. And the competition is strong: Paypal also released a cryptocurrency option for its online payments, so if you’re following the trends, this may be a harbinger of good things to come.
A serious strike against cryptocurrency’s growing popularity is its tendency to gobble up energy. Bitcoin mining—the process by which transactions are verified by solving complex mathematical problems—consumes more electricity every year than the country of Argentina and has a carbon footprint as large as the country of New Zealand. Fed Chair Janet Yellen is concerned about the efficiency of the technology, and with good reason. If it takes the electricity usage of a major South American country to verify transactions, we may have a problem down the line.