Is it too early for ecommerce brands to accept crypto payments?

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Artistic endeavors, case studies, research papers … a tidal wave of historical documentation is on its way to capture this moment of our collective experience as citizens of the world who stare down an uncertain future. 

What remains to be seen is whether or not the resurgence of interest in cryptocurrencies will play a major or minor role in those narratives. As we eavesdrop on the background conversation about NFTs, dogecoin, bitcoin’s price-of-the-day, and Elon’s thoughts on the whole lot, it’s easy to think cryptocurrencies are on the precipice of mainstream success. 

Why are cryptocurrencies so hot right now?

So much of our current cycle of fascination with crypto is a result of the pandemic itself. “People are seeing bitcoin as an alternative store of value during the pandemic,” says Danish Ajmeri, head of crypto at Wealthsimple. “Governments have been taking on debt to keep the economy functional, and people are fleeing from holding cash that could be devalued. Alternative asset classes like crypto, art, and even Pokemon cards are benefiting from investors needing a place to park their assets.”

The most significant legitimization of crypto came in February 2021, when Tesla bought $1.5 billion in bitcoin and announced it would soon start to accept it as payment. Then, in an SEC filing on March 15, Tesla wrote, “Effective as of March 15, 2021, the titles of Elon Musk and Zach Kirkhorn have changed to Technoking of Tesla and Master of Coin, respectively.” Whatever that means. 

Even beyond what Elon Musk tweets about bitcoin, decentralized finance is beginning to find product-market fit with more use cases that could inspire wider adoption. More people are starting to cross the chasm and access crypto, even as prices soar to $57,780.50 USD at the time of this writing.

But what does that mean, right now, for ecommerce brands wondering if they should accept cryptocurrencies as payment? If you’re not accepting bitcoin as a merchant, are you missing out on an opportunity to capture a meaningful segment of your market? Or is crypto still too volatile to accept as a legitimate form of payment to help your business grow?

To help guide you, this article will cover:

• The basics of the current cryptocurrency landscape
• Why stablecoins could be the answer for merchants
• Whether any ecommerce brands are accepting cryptocurrencies right now
• Signals that indicate you can consider accepting crypto payments  
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Crypto 2021: The basics

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The crypto world is full of jargon. It’s easy to feel like you need to learn another language to understand what enthusiasts are talking about. 

Our advice? Don’t worry about it too much. Here’s what you need to know to feel semi-competent, with some interesting bits thrown in for the next time you can attend a party.

Bitcoin: The original cryptocurrency invented in 2008 by an unknown person or group named Satoshi Nakamoto, who also designed the first blockchain database.

Blockchain: A decentralized, distributed ledger that records the ownership of digital assets like cryptocurrencies.

DeFi: The decentralized finance movement, which encourages the removal of third-party payment providers like banks and acquirers.

Delegated Proof-of-Stake (dPOS): Something you should know—crypto depends on mining, which is extremely resource-intensive and destructive to the environment. dPOS is an alternative validation method that’s in its infancy because it’s not yet secure enough. 

Dogecoin: Co-founded by IBM software engineer Billy Markus and Adobe software engineer Jackson Palmer, Dogecoin is a similar cryptocurrency developed to reach a broader demographic than bitcoin.

Ethereum: Ethereum is a decentralized blockchain used to carry out smart contracts, the creation of fungible (ERC20) and non-fungible (ERC721) tokens (see below), and other forms of decentralized finance.

Fiat currency: Legal government currency, like the US dollar, etc. Most paper currencies today are fiat currencies.

HODL: Originally a misspelling of “hold”, HODL has come to stand for “hold on for dear life”—which is what people do when they buy bitcoin and hold on to it for a long time, riding that volatility wave.

Microtransaction: A business model where very small payments are made in exchange for digital goods and services, like speciality items in a video game.

Non-fungible token (NFT): Okay, here we go—an NFT is just a unit of data on the blockchain. When it represents a digital file like a piece of art or other creative work like a song or video, that means it’s the original and the NFT is proof of original ownership (kind of like when an artist produces one painting and signs it). 

Mind-blowing fact: On March 11, 2021, Beeple’s Everydays: the First 5000 days collection was sold for $69.3 million.

‍Satoshi (SATS): The US dollar can be divided into cents, and bitcoin can be divided into its smallest available unit: the satoshi, at 0.00000001 BTC.

Stablecoin: A type of cryptocurrency whose value is tied to an outside asset like a fiat currency or gold. It’s so much more stable than bitcoin, and may be the first cryptocurrency widely used as a form of payment for goods and services (see below). 

For a complete glossary, check out this one by CoinMarketCap.

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‍Stablecoins: The gateway to mainstream payments?

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Bitcoin isn’t widely accepted as a form of payment because it’s too volatile. 

If your store were to accept bitcoin for a purchase today, that same currency could be worth a lot less in a few days, weeks, months. When Tesla decided to purchase $1.5 billion in bitcoin, it was placing a long-term bet, which it can afford to do because it’s a huge company. 

But no one can ignore that more people are buying cryptocurrencies. While the vast majority of people are doing so to hedge their investments rather than spend it as cash, one thing may change that in the near future: stablecoins.  

Stablecoins are synthetic versions of fiat currencies—like the US dollar—that circulate on the blockchain. When you use stablecoin for a purchase, you’re accessing your bitcoin to pay for goods or services, but the merchant receives fiat currency on the other end. A USD coin (known as USDC) is a stablecoin that is the equivalent of one US dollar.  

“Stablecoin may be the ‘third leg of the stool’ when it comes to recent growth of crypto,” says Danish Ajmeri, head of crypto at Wealthsimple. “It’s borderless, permissionless, easy to transfer, but it has the benefit of not being volatile and pegged to a currency people understand.”

Stablecoin may be closer to mainstream adoption than you think. On March 16, Visa CEO Alfred Kelly said on Fortune’s Leadership Next podcast that Visa is willing “to enable the purchase of Bitcoin on Visa credentials.” He also admitted that Visa recognizes “a strong potential for stablecoin to become a new payment vehicle.” 

According to a 2020 Forbes report, Visa partnered with Circle, a USDC “financial infrastructure hub” for global businesses. After Circle graduates from Visa’s Fast Track program sometime in 2021, Visa will likely issue a credit card that lets businesses send and receive USDC payments.

Paypal is making similar bets on stablecoin, going so far as to develop its own stablecoin, the PAX, partnership with Paxos, a regulated  blockchain infrastructure platform. 

And on January 5, 2021, the US government took a major step forward: the Office of the Comptroller of the Currency, the US’s top banking regulator, approved the use of stablecoins (but not bitcoin) for the settlement of financial transactions by banks.

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‍So who’s accepting crypto right now?

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If you’re looking for smaller retailers who will accept your cryptocurrency as payment, you’d be hard pressed to find them. But that doesn’t mean you can’t find places that are experimenting, albeit quietly, with accepting crypto payments. 

In 2019, an investigation by Forbes revealed that beta testers for Flexa made purchases at GameStop (yes, that one), Bed Bath & Beyond, and Whole Foods, among others who have partnered with Flexa. Fast forward to 2021, and Gemini (a Flexa partner) announced the upcoming launch of the Gemini Credit Card—you’ll need to join a waitlist to gain access—a credit card that lets people earn up to 3% back in bitcoin or other cryptocurrencies for every dollar spent. 

The crypto payments infrastructure, albeit still in progress, is starting to cement—but does that mean retailers will start accepting payment? The answer is still “maybe”.

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‍Why some brands would consider accepting crypto—or not

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Mohammed Asaduallah, CEO of Benji, says he’d consider accepting bitcoin as payment for his tax write-off solution for freelancers. “If I accept bitcoin,” he says, “I’m accepting something that will be more valuable later, whereas with cash, it won’t retain the same value in ten years. If I don’t need the cash right away, I’d rather take some bitcoin because I see it as a digital asset for my company. Later down the road if I decided to realize the gains, I'll be able to get a lot more out of it.”

Lucah Rosenberg-Lee, founder and ecommerce brand consultant for Natural Element, warns that most new brands rely so much on their liquid capital to operate that they may not be able to afford to accept cryptocurrencies for a long time. 

“Let’s say you’ve accepted crypto but you need to purchase inventory,” he says. “The revenue you took in crypto could be less than what you need to spend at that moment to grow your company. Unless you’re an Amazon, who can afford to take hits worth millions of dollars, you won’t be able to accept the volatility that comes with crypto payments.” 

While savings on fees have yet to solidify as major banks develop crypto technology, merchants who accept bitcoin can see savings on credit card fees that have traditionally been 0.5% to 5%, plus a 20 to 30 cent flat fee for each transaction made. Bitcoin payments, on the other hand, are much cheaper to send and receive, since fees are based on the amount of data sent.

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‍Signals that mean you may be ready to accept crypto payments 

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While Rosenberg-Lee acknowledges that it’s tough for smaller ecommerce brands to start accepting crypto payments, he offers some criteria that indicate you may want to consider it: 

1. Your cash flow and profit margins have been healthy for a long time, and you can afford to take some hits on volatility. 
2. Your larger competitors have been accepting crypto for some time. 
3. You intend to hold on to any cryptocurrency you receive until it’s mainstream (HODL!).
4. You have a long-term investment strategy for your business.
5. You want to invest in other blockchain technologies, such as supply chain technology.
6. You want to be able to promote secure, cheap transactions as a benefit in the future. 
7. You want to grow your business in a new geography where crypto payments are seeing faster adoption (Southeast Asia, for example). 
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‍A final thought

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“Crypto payments are going to be something that feels like it came out of nowhere, but it’s been brewing for years,” says Danish Ajmeri, head of crypto at Wealthsimple. “We are just now starting to see examples of mainstream use cases that actually make sense for this tech, as opposed to the hype. I think that’s only going to accelerate over the next three to five years, and I wouldn’t be surprised if crypto payment rails are the standard way that people choose to pay.”

One day, we will look back and tell younger generations what it was like to live through our current era.