Although digital currencies were originally thought of as an alternative to government-issued fiat money – at least judging by what Bitcoin’s creator wrote in the project’s whitepaper – they have come to be predominantly used as stores of value instead. With crypto becoming a popular, albeit controversial, investment venue, people almost forgot about its initial purpose and utility as a payment solution. It seems like everyone was too busy chasing quick gains to care about the vision and goals of the founding fathers of the cryptocurrency industry.
However, just because this use case ended up being lost in the hype surrounding crypto investments, with all the attention being centered on earnings, losses, and price fluctuations easily reflected in the BTC or ETH price chart, doesn’t mean that crypto payments are a thing of the past or that digital currencies can no longer be used to purchase things. On the contrary, the growing number of businesses and organizations around the world that allow customers to pay with crypto is bringing this feature back into the spotlight.
Major companies like PayPal, Microsoft, Home Depot, AT&T, Starbucks, and Rakuten have been accepting crypto payments for years, and other smaller enterprises across various industries seem to be following their lead lately. According to the most recent estimations, over 30,000 merchants worldwide already accept Bitcoin, and many more are considering doing the same.
This is not a question of whether crypto is going to replace fiat money at one point in the future or not, seeing that the probability for this to happen is extremely reduced, but more of an exploration of crypto’s capacity to serve as a payment mechanism in conjunction with conventional currencies. So, if you’re curious about what paying with crypto entails, and what advantages you can expect from it, we’re here to break it all down for you.
Security
Crypto transactions are not facilitated by a third-party payment processor as is the case with traditional money, but by blockchain technology, which acts as a decentralized public ledger. This means every detail regarding the transfer of funds between a buyer and a seller is recorded in a system that is managed and secured by a network of nodes instead of a central entity. With no single point of failure, the possibility of dealing with security issues such as scams, breaches, and cyber-attacks is greatly reduced.
Swiftness
Given that crypto transactions take place directly between users and are not intermediated by outside parties means they are much faster than traditional payments, which may take up to several days to be completed, depending on the networks and financial institutions that facilitate the transaction, as well as the countries involved. Due to crypto’s borderless nature, even international transfers can happen instantly, which is good for businesses and customers.
Low Fees
Traditional payment processors charge rather high fees for enabling transactions, typically ranging between 1.5% to 3.5% of the total amount. While crypto transactions aren’t free of fees either, these are much lower, allowing vendors to offer better prices for the goods and services that are being purchased via this method.
Traceability
Transactional data gets stored on a blockchain in a sequence of blocks that are linked together via cryptographic hashes. This guarantees transactions are permanent and immutable, making it virtually impossible for anyone to change the recorded data in any way, while also ensuring transactions are easily traceable.
Transparency
As a public digital ledger, blockchain gives all the parties involved in a transaction or anyone who wants to verify a transfer easy access to all of its details. This provides crypto payments with a level of transparency, legitimacy, and accountability that fiat money could never replicate, building trust with consumers who know they can benefit from a safe financial environment.
Inclusion
In developing countries, many people are excluded from basic financial services that individuals living in other regions take for granted, which means access to certain products is also limited. Here, crypto payments can serve as a tool for financial inclusion, giving these unbanked and underbanked populations the possibility to complete transactions with ease and purchase the goods they require.
Privacy
Although the myth of crypto’s anonymity has long been dispelled, it has been proved that all crypto transactions leave a trail that allows investigators to trace the identity of users. Paying with digital currencies provides a higher degree of privacy than fiat money.
For users, this means they can conduct transactions without sharing their personal information with merchants, something that wouldn’t be possible if they resorted to conventional digital payments. By keeping sensitive data out of the equation, the risk of identity theft and breaches is also greatly reduced.
Control
Crypto offers self-custody, so you are in full control of your funds. No one else has power over your assets but you, given that access to your digital wallet is granted through a private key, which acts like a highly secure password. As long as you don’t share the passkey with anyone, you don’t have to worry about hackers or unauthorized access. By comparison, when you hand your money over to a bank, you trust a third-party with the management of your funds and allow them to intermediate transactions for you.
The Downsides
As expected, there are also downsides to paying with crypto, which one should also be aware of. Digital currencies represent a relatively novel asset class compared to fiat money, so introducing these innovative instruments into current payment systems doesn’t come without risks and challenges.
The extreme volatility of crypto assets, which underscores their potential as an investment, still poses a major issue for both vendors and buyers, as prices can fluctuate wildly, creating large discrepancies when converting crypto into fiat. Another major issue is the lack of interoperability between blockchains, which hampers efforts to facilitate financial transactions through these channels.
Add to that the lack of unified regulations covering digital assets and it becomes clear why businesses and customers are still reluctant to embrace crypto payments. Crypto can become a useful tool for everyday transactions, providing a series of advantages over fiat money. However, for digital currencies to reach a widespread level of acceptance as a payment method, it’s necessary to find practical solutions to the challenges they pose.
