Crypto payments are as old as cryptocurrency itself. Back in Bitcoin’s early days, hobbyists would accept bitcoin (BTC) as payment for goods and services. It’s how the first use cases for bitcoin developed, both on darknet markets and on the clearnet.
Crypto has changed immeasurably since then, of course, and so has the global payments industry. As bitcoin’s value began soaring in 2013, people stopped spending it and the “hodl” meme was born. Shortly afterward, the first smart contracts were developed, paving the way for programmable money and ushering in a new wave of crypto payment services.
In this article we’ll cover the evolution of crypto payments before delving deep into the status of crypto payments today. Spoiler alert: it involves stablecoins. We’ll also consider some of the advantages – and disadvantages – of cryptocurrency payments, the popularity of which has waxed and waned over the years.
The problem with crypto payments
Let’s start with the most obvious downside to cryptocurrency: it’s volatile. That’s fine if you’re trading it for profit, but not much use when exchanging goods and services. No merchant wants to receive payment in crypto only to discover that it’s dropped 30% by the time they’ve gone to redeem it.
For this reason, payments made with assets such as ether (ETH) and bitcoin (BTC) have largely been limited (though public projects such as the Bitcoin Lightning Network are trying to change this). If you sell hardware wallets or “Bitcoin to the Moon” apparel, it makes sense to accept BTC. If you’re Amazon.com, not so much. And yet that’s not to say that crypto hasn’t done its bit to advance the global payments industry – far from it.
The global remittance market is worth $700 billion a year and is riddled with inefficiencies, with money transfer services charging up to 25%. The mainstreaming of crypto has enabled workers to send money to family in developing nations for just a few cents. And because remittance recipients can convert the crypto into local cash at ATMs and in stores - or directly from a digital wallet - they’re not exposed to its volatility if they don’t want to be.
But then citizens in many developing nations, particularly Latin America (LATAM) are only too familiar with volatility: they face it every day when dealing with their own local currencies, many of which are facing their highest inflation in 25 years. In this context, assets like BTC seem pretty stable. And speaking of stable, there’s another type of digital asset LATAM citizens are latching onto: the stablecoin.
All hail the stable
Virtually unheard of in crypto five years ago, stablecoins are now the backbone of the cryptoconomy, used as a source of sanctuary during market turmoil, a staple of decentralised finance (DeFi), and a means of payment for residents of developing and developed nations alike. The most popular stablecoin, Tether, currently has a market cap of $67 billion, followed by USDC, and Binance’s BUSD. Combined, they account for around $140 billion of capitalization and are routinely used for payments including crypto companies disbursing employee wages, between contractors, and payments directly between individuals.
While crypto advocates are all in favour of digital assets that are beyond the control of any single government or entity, there are times when the stability of the US dollar is desirable, and payments are one such instance. Stablecoins have been integrated into many ecommerce checkouts as a payment option, preventing crypto natives from needing to cash out in order to purchase goods and services.
Stablecoins can make it easier for people in countries with unstable currencies to access global markets as they provide a reliable store of value. They can also facilitate cross-border transactions and interoperate with other cryptocurrencies and traditional financial systems. Finally, stablecoins such as USDC boast greater supervisory oversight than traditional cryptos, with their issuance and redemption tracked and their issuers undergoing regular audits.
The case for crypto payments
We considered some of the downsides to cryptocurrency payments at the outset, not least in terms of volatility when dealing with non-stablecoins. But what about the advantages they have to offer?
Cryptocurrency has the potential to disrupt the global payments market by offering a fast, secure, and borderless way to transfer money. Benefits include:
- Speed: Transactions using cryptocurrency can be processed quickly, often within minutes, whereas traditional wire transfers can take days to clear.
- Lower fees: Because crypto transactions are processed on a decentralised network, they often come with lower fees than traditional wire transfers or credit card transactions.
- Security: Cryptocurrency transactions are secured by advanced cryptography and are less vulnerable to fraud and hacking than traditional payment methods.
- Borderless: Cryptocurrency can be used to send money across borders without the need for intermediaries such as banks, which can save money and time.
- Decentralisation: Crypto is transferred over decentralised blockchain networks, where the control is distributed among the users, rather than a central authority like governments or banks. This minimises the risk of funds being frozen or seized.
Given these benefits, it’s no wonder that many of the industry’s brightest minds have chosen to focus on developing crypto payment solutions. Payment giant PayPal has added support for cryptocurrency; Strike and CashApp also support crypto payments; and crypto debit cards are flourishing. These include services like Revolut and of course Zumo.
The Zumo Visa card allows you to convert your crypto to pounds and spend it anywhere that accepts Visa – which is pretty much everywhere. If you’ve yet to experience the convenience of paying with crypto, it’s time you ticked this off your bucket list. The beauty of crypto debit cards is that they allow you to enjoy the best of both worlds: the upside to holding digital assets coupled with the ability to spend in your local currency in shops and online.
The future of payments is digital
While the popularity of crypto payments has ebbed and flowed over the years, there’ll be no escaping them in the near future. That’s because many countries are now exploring or trialling central bank digital currencies (CBDCs), which are essentially e-cash, or government-controlled digital currency that’s issued using distributed ledger technology.
CBDCs can increase the efficiency of the payment system by reducing the need for intermediaries such as banks and clearinghouses. There’s also the potential for them to reduce the risk of fraud and hacking associated with traditional payment methods. Central banks are primarily interested in them, however, because they allow for more granular control over monetary policy, such as transmission of interest rates or even making direct government-to-citizen payments.
While generally classified as cryptocurrency from a technical perspective, CBDCs are permissioned and highly regulated - and may not even be issued on a blockchain at all. Because they give governments and their central banks an even more powerful and direct role in the monetary system than they have already, many cryptocurrency users – as well as non-crypto users – are heavily against them. It remains to be seen whether CBDCs are rolled out at scale. It's also worth noting that CBDCs are still in the experimental and development phase, and the benefits and drawbacks are still being evaluated.
In the meantime, cryptos of all kinds remain popular for payments, not just in countries that have formally adopted them, such as El Salvador, but as a means of transferring value internationally. Remittances; paying for a cup of coffee; covering a VPN subscription: you name it, crypto’s good for it.