The results of a study conducted by researchers at Payment Sense shows that as much as 35% of SME owners believe that cryptocurrencies will become an acceptable form of payment in the retail industry by 2020. In fact, as much as 21% of the respondents that cryptocurrency payments will become a norm in the retail industry within the next one year.
Cryptocurrency has struggled to get mainstream adoption since the original debut of Bitcoin in 2009. On the one hand, the fact that Bitcoin rapidly became the de facto means of exchange for illegal activities on Silk Road made legit businesses wary of associating it with their operations. Secondly, the media, backed by governments and traditional financial institutions did an excellent job of vilifying cryptocurrencies.
Now, Silk Road is shut down and the world has started seeing positive use-cases and applications of cryptocurrency in commerce and business. For instance, Ripple is creating a borderless world with the payment gateway and Ethereum is powering smart contracts that engender business trust. Government regulations are also catching up with cryptocurrency innovation as cryptocurrency futures and ETFs start to show up. Yet, there’s still the question on when cryptocurrency will replace fiat and its paraphernalia of credit/debit cards, POS, and card readers. This price provides insight into 3 reasons cryptocurrency is yet to take its place in payments.
- Cryptocurrencies are incredibly volatile
The first reason retailers are not particularly enthused about accepting cryptocurrency payments is the inherent volatility in the price and value of crypto assets. The latest 30-day volatility estimate of Bitcoin is 3.84% and the volatility of the cryptocurrency (and others) has gone as high as 16% as in the historical volatility chart below. In contrast, the 30-day volatility for fiat currencies USD/GBP is 0.45% and the biggest bump in volatility over the last 8 years was 4.93%, which coincides with the historical Brexit move.
Interestingly, Tosblock (T.OS project) might be able to solve the volatility problem in cryptocurrency payments with its innovative T.OS payment system. The T.OS payment system contains a public blockchain, a private blockchain, the T.OS wallet, a T.OS exchange, TOSC and TOSP coins. The TOSC is a coin tradeable on exchanges, it has fluctuating prices, and it is transferable via the public blockchain. The TOSP is a coin used on the private blockchain for fixing the value of a payment unit and its price per time is based on the price of TOSC.
Cryptocurrency users can convert a certain amount of TOSC into TOSP right there in their wallet, and then use the T.OSP to purchase stuff. The value of TOSP is pegged to the value of the retailer’s local currency 1:1 and the retailer can convert the TOSP into the fiat value of their local currency. 1 TOSP in the USA might be worth $1, and in Japan in would be worth 1 Yen. That way shops and merchants can accept payments without worrying about the currency losing value TOSC is tradeable on exchanges like any other cryptocurrency but TOSP is only convertible to fiat.
- Cryptocurrency transactions are still somewhat slow
The second factor delaying the widespread adoption of cryptocurrencies in payments is that cryptocurrency transactions still take a relatively longer time to be processed and confirmed than fiat currencies. You might still remember the debacle of unconfirmed transactions that frustrated Bitcoin users last year when as much as 220,000 transactions remained unconfirmed for as much as 3 days. The transaction speeds of most cryptocurrencies are tool slow to make them practical for payments.
VISA processes about 24,000 transactions per second; in contrast, Bitcoin processes 7 transactions per second and Ethereum can only process about 25 transactions per second. The T.OSC coin identified above does about 70 transactions per second, which still makes it impractical for payments. However, its payment-focused T.SOP can process about 1,000 transactions per second; hence, it might have a valid use case in payments.
If cryptocurrency can payments can’t be processed in near-instant time, retailers won’t be enthused about accepting them because every minute you must wait for your transaction to be processed potentially increases the odds that volatility will wipe out their profit from the sale.
- Lack of interoperability makes it hard to choose any one coin
The third reason retailers haven’t been particularly optimistic about accepting cryptocurrency payments is that there’s still a great deal of interoperability among cryptocurrencies. There are about 1,817 coins, tokens, and altcoins in the market – most of them market themselves as a means of payment or exchange. For retailers, the setup to integrate your ecommerce system is somewhat resource-consuming; hence, it might be somewhat hard to choose exactly which type or cryptocurrencies you’ll want to accept.
More so, different cryptocurrencies have different volumes of volatility – some cryptocurrencies tend to see a spike in their value when the price of Bitcoin falls, some cryptocurrencies crash when the price of Bitcoin rises, and some cryptocurrencies tend to track the value of Bitcoin. Until cryptocurrencies evolve to the point where users can do near-instant swaps on conduct off-chain transactions, cryptocurrencies might continue to lag fiat as a form of payment.