With Bitcoin, Ethereum and Dogecoin making news headlines in the past year, it’s been hard not to notice the impact of blockchain based cryptocurrencies on everyday people. So how does cryptocurrency and blockchain in eCommerce impact online retailers specifically?
An alternative payment system built on the blockchain ledger, cryptocurrency has found cultural cache as an alternative to traditional investments, traditional currency types and traditional banking. In fact, New York City mayor-elect Eric Adams recently made global news headlines when, following his win of the mayoral race, said he wished to be paid in Bitcoin and hoped to help make New York a crypto-friendly city.
As the race to establish cryptocurrency as a mainstream alternative to traditional banking intensifies, it’s important to understand what cryptocurrency is, how it works hand-in-hand with the blockchain ledger, and how both of these technologies are set to impact the eCommerce industry.
Just as online credit card payment gateways first made eCommerce possible in the 1990s, and then PayPal, Venmo and other third-party payment vendors stepped in to offer alternative payment options, the eCommerce industry must now reckon with the advent of cryptocurrency and what it means for eCommerce businesses to incorporate this payment method.
With cryptocurrency comes the blockchain – the transparent, digital ledger in which all cryptocurrency transactions are recorded. Blockchain offers eCommerce brands many benefits, including faster and more cost-effective business processes, as well as greater data security.
As the hype around cryptocurrency intensifies, brands, marketplaces, and payment processors are increasingly accepting cryptocurrency as payment for goods and services. As this evolution takes place, it’s getting harder to ignore the impact that cryptocurrency and the blockchain have on eCommerce. Understanding the potential implications of this technology can help eCommerce brands unlock valuable opportunities for future business.
Let’s start by gaining insight and understanding into what cryptocurrency and the blockchain are and their potential impact and application to the eCommerce industry.
Understanding cryptocurrency and blockchain
A cryptocurrency (often shortened to “crypto”) is a digital currency used to buy goods and services. It is regarded as an asset with variable value, as opposed to fiat currency (or cash as we know it), which has fixed value. Cryptocurrencies use decentralised control, meaning that, unlike traditional currencies, they are not regulated by banks or governments.
Instead, transactions made with cryptocurrency and blockchain in eCommerce are verified by a decentralised network without a central server, using encryption to keep track of each transaction and control the release of each currency. An online ledger with strong cryptography is used to secure online transactions. This ledger is known as distributed ledger technology (DLT), the shared database where every transaction of a particular cryptocurrency is recorded.
Of all DLTs, the most common one is the blockchain. Blockchain isn’t a programming language or an application; it’s a new technology. It is a secure online ledger that keeps a record of every transaction made in a given place. It enables users to share and securely store digital assets, such as cryptocurrency. Using the blockchain, cryptocurrency transactions are recorded, and the information cannot be edited or deleted, leaving a permanent record of the transactions made using various cryptocurrencies. This, in a nutshell, is how cryptocurrency payment works.
The popularity of cryptocurrency with consumers
While Bitcoin (abbreviated BTC) was the first cryptocurrency, today, there are over 4,000 cryptocurrencies available worldwide. Because Bitcoin came first, it has become a generic name for cryptocurrencies, with many people using the term “Bitcoin” when they refer to any cryptocurrency, as one might refer to any vacuum cleaner as “hoover”!
A large part of Bitcoin’s popularity is that it is finite. Bitcoin was created by Satoshi Nakamoto with a limited supply in mind; only 21 million Bitcoins are in circulation. In a way, this makes Bitcoin similar to gold in that it is not finite. Many believe that Nakamoto developed Bitcoin this way purposefully to create an electronic currency that would be inflation-proof.
Bitcoin is not the only type of finite cryptocurrency, however. Other cryptocurrencies with a finite supply include Litecoin (84 million), Ripple (100 billion), Dash (18.9 million), and IOTA (2.8 billion). In addition to Bitcoin and these, other popular cryptocurrencies include Ethereum, Dogecoin, and Shiba Inu, all of which have been lauded and invested in by Tesla and SpaceX CEO Elon Musk.
Cryptocurrency is used by consumers around the world, with varying degrees of uptake in different countries. For example, while only 6% of Americans have reported owning or using cryptocurrency, a whopping 32% of Nigerians have. The reasons for this align with markets that have a higher rate of mobile commerce and less access to traditional banking methods. It stands to reason that for eCommerce sellers, accepting crypto as yet another form of payment can help unlock revenue streams in new markets.
It is estimated that, globally, nearly 4% of the world’s consumers hold cryptocurrency, and around 18,000 businesses worldwide accept cryptocurrency as payment. As confidence in cryptocurrencies grows, an increasing number of retailers are beginning to accept crypto as payment.
Amongst the first companies to accept cryptocurrency was Microsoft, which in 2014 started to accept Bitcoin for use in its online Xbox store. The popular US eCommerce website, Overstock.com, accepts cryptocurrency as payment, as does US mobile carrier AT&T.
In the UK, retailers that accept crypto include Shopify, Whole Foods, Etsy, and even cosmetic retailer Lush, which was one of the first global companies to adapt to this new form of payment. Amazon doesn’t yet accept cryptocurrencies as payment, but it has recently discussed launching its own exclusive cryptocurrency.
How eCommerce brands can accept cryptocurrency as payment
Although cryptocurrency may seem like science fiction, it’s very real and relatively straightforward for eCommerce businesses to accept as a payment option. It’s not far-fetched for online businesses to add cryptocurrency as another option for payment, alongside the typical Mastercard, Visa, Debit and PayPal options currently in place for most eCommerce websites.
The simplest way for an eCommerce brand to begin to accept crypto payments is to use a payment processor that offers crypto as an option. The price for each product is displayed in fiat currency (e.g., pounds sterling, dollars, etc.) and is converted into the equivalent crypto value when the user selects crypto as the payment method. The transaction is then securely processed through a payment gateway, the same as any other payment, the only difference being that the transaction is forever recorded on the blockchain.
This means that there is a historical record of that payment transaction that will never disappear, remaining recorded in the ledger. Obviously, this can be useful to merchants and buyers looking to keep long-term records without the hassle of holding onto receipts. More on that shortly.
More practically, when implementing cryptocurrency and blockchain in eCommerce, online retailers will need to implement the use of a payment gateway that supports crypto. Popular crypto gateways include Bitpay, Blockonomics, Coinbase Commerce, Coingate, Crypto.com Pay, and NOWPayments. eCommerce brands will need to ensure that the gateway they choose is compatible with the content management system they are using to run their online shop (e.g., WooCommerce, Magento, Shopify, etc.)
Benefits of accepting cryptocurrency in eCommerce
Accepting crypto as payment for eCommerce transactions has several benefits. The four most prominent advantages are:
- Cryptocurrency payments are chargeback-proof.
Yes, that’s right! Transactions using cryptocurrencies are not subject to chargebacks. This is helpful to eCommerce sellers, as chargebacks drain revenue, have the potential to jeopardise a merchant’s account, and take time and effort to resolve. Because cryptocurrency is intended to function like virtual cash, where payments are permanent, cryptocurrency transfers in an eCommerce situation are placed in escrow until both parties confirm the transaction. Once the transaction is finalised and recorded in the blockchain, it cannot be reversed.
- The transaction fees associated with crypto payments are low. Since cryptocurrencies are not regulated by traditional financial institutions or governments, they take place directly between buyer and seller. This eliminates the middleman that holds the funds and results in lower (if any) processing fees for crypto payment transactions. eCommerce brands can often find crypto processors that offer extremely low rates, to the tune of just 1% for a high-volume eCommerce website.
- Accepting crypto payments opens up new markets. Because cryptocurrency is a straightforward, cash-like transaction between buyer and seller, not subject to bank or government regulation, this makes it especially attractive for commerce in undeveloped marketplaces like Asia and the Middle East, where many consumers are ‘unbanked’ – that is, not enrolled in a traditional, Western-style banking system. eCommerce brands that accept cryptocurrencies can increase sales volumes in these markets, whereas competitors who do not accept crypto may miss out on the opportunity to do business with consumers from these regions.
- Transactions are recorded securely on the blockchain. As described above, the blockchain is a secure online ledger that keeps a record of every transaction made. Blockchain technology enables users to share and securely store cryptocurrency. It records payment transactions such that whenever a payment is made, an entry is published in the blockchain.
The blockchain joins individual records, linking them into a list, called a chain. When a customer sends a payment using crypto, an entry is published in the blockchain. Other computers in the network will check to ensure that the crypto data hasn’t already been spent (hence fortifying the digital currency against corruption). As the network keeps a record of each transaction, data entered into blockchain cannot be deleted, changed, or corrupted.
Cryptocurrency in eCommerce: what to watch out for
While there aren’t too many downsides to accepting cryptocurrency within eCommerce, some potential pitfalls should be acknowledged.
Volatility. As cryptocurrency is still relatively new and not subject to governance by traditional banking and government systems and regulations, it is susceptible to increased volatility. For risk-averse industry players, it may not be the right solution. That said, it’s important to note that cryptocurrency can always be converted to one’s local fiat currency, meaning that you can ‘cash out’ at any point to avoid market fluctuations in crypto valuation.
Impact on customer service. Accepting cryptocurrency and blockchain in eCommerce opens up an online retailer to increased queries and enquiries about how the payment system works. This can be an important consideration for brands managing their customer service volume. Offering a unique payment option like crypto can significantly add to the customer service team’s existing workload but this challenge can be overcome by empowering support agents with the knowledge and tools they need to work efficiently.
Security considerations of blockchain in eCommerce
While the blockchain records digital transactions securely and permanently, cross-checking for accuracy amongst other computers in the chain, this does not mean that eCommerce companies accepting crypto should not be mindful of security considerations.
In fact, sellers will want to ensure that the most recent software updates are in place and that the business cryptocurrency wallet is fortified using strong passwords and two-factor authentication. Computers should be backed up regularly, using encryption to protect each back-up from cyberthreat. These are typical security best practices but especially important when dealing with digital financial assets such as crypto.
Businesses may also consider keeping an offline version of their cryptocurrency wallet (known as ‘cold storage’) for extra security. Frequently transferring funds into local currency, which can be kept in a traditional bank, is also a good move to protect large volumes of revenue.
Cryptocurrency and blockchain technology as the new frontier in eCommerce
Blockchain makes transactions easy, fast, and safe, making it ideal for eCommerce. Offering secure online transactions, blockchain can improve business processes while providing a convenient way for customers to pay. Ultimately, keeping pace with new technologies and giving customers better ways to pay can be quite lucrative for businesses.
Increasingly, forward-thinking companies are adopting cryptocurrency as payment. Digital currency has disrupted the eCommerce, payments and banking industries while making a name for itself as a financial heavyweight in its own right. For eCommerce brands looking to take a forward-looking approach to payment options, there can be many benefits to implementing cryptocurrency.