Cryptocurrencies are hot news. Visa announced that it would test some type of cryptocurrency on its network. Elon Musk proclaimed that Tesla would accept cryptocurrency as a means of payment for its vehicles. Bitcoin’s value is increasing.
Traders may wonder if cryptocurrencies are ready for mainstream e-commerce. The answer is no. Here’s why.
8 reasons to avoid cryptocurrencies
Problem 1: volatility. The value of national fiat currencies such as the US dollar fluctuates slightly. Even in times of relatively high inflation, the purchasing power of the US dollar is more or less the same as in a few months.
Cryptocurrencies, on the other hand, are remarkably volatile. A year ago, Bitcoin was trading at around $ 10,000. Today it’s around $ 60,000. That’s the equivalent of 17 cents, which increases to $ 1.
To overcome volatility, the cryptocurrency industry created stablecoin, a type of cryptocurrency whose value is tied to a more stable asset such as the US dollar or gold. However, stablecoin is not yet widespread, partly because cryptospeculators do not like stability as it affects their earning potential.
Despite the claims made by crypto advocates, the possibility of significant depreciation is terrifying. The risk is too great for small and medium-sized e-commerce retailers.
Problem 2: No rewards. Consumers sometimes use credit cards to get cashback and point-based rewards. Issuers offer these incentives to motivate consumers to pay with cards. There is no large-scale crypto equivalent to Citi’s Double Cash card or Amazon’s Prime Rewards visa or any of the hundreds of other popular loyalty programs. The lack of these programs is an obstacle to using crypto for routine payments.
Problem 3: No consumer protection. Chargebacks are expensive and time consuming for merchants. Still, they are an important part of the credit card ecosystem. Knowing that they are not responsible for fraudulent credit card purchases gives consumers confidence. Crypto payments do not have such protection. A customer has no recourse if the dealer fails to meet his obligations. Merchants have no legal or contractual obligation to refund a crypto purchase, although they can choose to. A consumer could presumably sue a retailer, but it is unlikely.
Problem 4: Not Universal. Cash is universal. Credit and debit cards are universal. Cryptocurrency is not. There are a ton of cryptocurrencies out there, but the use of crypto payments for retail purchases remains an anomaly. Only a handful of payment gateways (and even fewer point-of-sale terminals) process crypto transactions. Conclusion: cryptocurrencies are too difficult to obtain for consumers and to accept for merchants.
Problem 5: fragmentation. There are roughly 5,000 cryptocurrencies. Banks, payment processors and merchants are largely unsure how to process the thousands of options available. New “coins” appear every day. Which ones should traders accept? What if a consumer wants to pay with the latest cryptocurrency but cannot process the payment gateway? In contrast, consider national currencies. Most major financial institutions only trade in around 150 national currencies or less. The United Nations recognize 180.
Problem 6: Expensive. Typical prices for accepting cryptocurrencies for online purchases are around 1 percent, around 1 percent lower than most credit cards. However, accepting crypto becomes expensive when a separate payment gateway is integrated and managed and currency conversion fees are added. The latter point, converting cryptos to fiat currencies, is the real catch. Merchants should carefully consider costs as prices are generally high, negating the savings from low transaction fees.
Problem 7: Security Risks. Cryptocurrency is essentially digital money. Stolen credit cards and bank accounts are a huge headache. Unless the account holder acted negligently, the issuer or the bank will return the money. Not so with cryptocurrencies. Once stolen, cryptocurrencies are gone forever – without recourse. Therefore, cryptocurrency holders need to add security measures to protect their accounts.
Problem 8: Coming regulation. National and local governments around the world are considering taxing, banning, limiting, or controlling cryptocurrencies. Several countries are in the early stages of creating their own national cryptocurrencies called CBDCs (Central Bank Digital Currencies). Interested dealers and consumers should let the dust settle.