It has been held by crypto that a payments revolution would happen. However, it has never happened. Thirteen years ago, we were in the midst of the Bitcoin age. There is only one store in our neighborhood that accepts Bitcoin. This was a very visible act of protest against the establishment’s design. The vandal had written “non” in the middle of the bright orange on the storefront.
The vandal did not provide us with any information. However, it is widely believed that their motivation was related to the environmental issues of proof-of-work, which requires a lot of electricity to perform. Getting the payments industry to accept cryptocurrencies is a daunting task, especially due to inherent volatility and novelty. Aside from that, the ecosystem’s concerns about its impact on the environment also make it even more difficult to get started.
Even though crypto is not widely used, it should still be considered a payment medium for those who do not care about it.
The rapid decline of cash as a payment method has led to the rise of card networks. The companies or corporations issuing credit cards and debit cards have become more powerful. As consumers, we rarely notice how much money the card networks make when we pay with our credit or debit cards. But it is very profitable for them.
The returns on equity of Mastercard and Visa are testament to their oligopolistic moats. On average, the average company’s return is only around 10-15%.
One of the solutions to oligopolies is competition. This is the idea that if more payment networks are willing to fight for market share, consumers will be able to select the cheapest one. Ideally, cryptocurrencies would be able to function as a payment medium. Unfortunately, they have mostly been restricted to serving the speculative nature of the crypto economy.
Over the past year, various leaks in the cryptocurrency space have been slowly plugging away. They are aimed at pushing the small advance that the industry has made in payments into retreat.
In one of our neighborhood stores, the owner might have argued with themselves after seeing the window of their establishment vandalized. They might have also decided not to accept bitcoin because it gets negative attention. The majority of the editors who asked the foundation to stop supporting cryptocurrencies cited its environmental sustainability as their main reason for doing so. The platform, which has over 10 million users, said it did not plan on integrating with cryptocurrencies. It was prompted by users’ concerns about energy use.
The editors of Wikipedia are very passionate about their work. They are more likely to support projects that are focused on improving the quality of Wikipedia than those focused on collecting donations in crypto. According to the organization, just over a third of its donations come from bitcoin.
The Wikimedia Foundation does have a reason to be against crypto. At 0.08%, it is not very useful for accepting payments. If the activists had pressured the company to stop accepting visas, it would have been a non-starter. The company is already a massive player in the payments industry, and it would likely account for a huge portion of all donations.
The complexity of the crypto payments dilemma is that while you can not say no to Visa, you can still refuse to accept cryptocurrencies. Retail payments networks are typically hard to bootstrap. People who want to adopt a new payment option need to be able to find it easily and widely available. However, it can not be immediately useful if no one wants to try it.
The card networks have strong footholds, and they can easily enforce lock-in policies, which are often used to get around the users’ reluctance to switch. The volatility of cryptocurrencies makes it even harder for them to break the nut.
The world of cryptocurrencies has evolved a bit in response to volatility. One of the most common types of cryptocurrencies is stablecoins, which are designed to be more user-friendly. Because of the nature of their nature, stablecoins are more likely to fight against the oligopolies of Visa and Mastercard.
However, Stablecoins are built on an energy-intensive proof-of-work blockchain, which can expose them to the growing environmental criticism. Since the payment problems faced by stablecoin issuers are already well known, it is important that card users refrain from making excuses not to give them a try.
The reevaluation of Mozilla’s stance on cryptocurrency donations is an example of how we hope the debate about cryptocurrencies and climate change can evolve. The organization, which makes the popular browser Firefox, paused its donations to cryptocurrency in January to see if it could fit with its goals.
Mozilla decided to change its policy and accept proof-of-stake digital currencies in response to the growing popularity of cryptocurrencies. The company noted that these are less energy-intensive than traditional methods of payment.
If the more prominent issuers of Mozilla’s platform embrace stablecoin, it will create a window for stablecoin. However, this window would come at a price. If stablecoins are going to compete in a meaningful manner with the networks, they need to separate themselves from the proof-of-work process.
It could also mean avoiding the use of proof-of-work blockchains altogether. At the worst, it could mean waiting for the security methods used by other cryptocurrencies to switch over. Getting rid of all the ammunition critics have against stablecoins will make it easier for them to solve the payment problems plaguing the industry. However, they need to win.
Key Takeaways
Due to the increasing popularity of digital payments, including cryptocurrency, the adoption of this asset class is expected to continue growing. A recent survey conducted by Carat Insights revealed that over 2,000 US adults are currently using crypto as a payment method.
Around 16% of Americans have used crypto to pay for goods and services at least once. Similar numbers have used it for other types of transactions. More than half of crypto users are aged 18-34. Also, they are more likely to be from higher education backgrounds. Despite the various advantages of crypto, 25% of users cite the lack of merchant acceptance as a reason for not increasing their usage. Other factors such as security and risk concerns also prevent more people from adopting it.
Although the general population is becoming more aware of the benefits of cryptocurrencies, adoption is mainly driven by specific demographic groups. For instance, customers with higher incomes and education are more likely to adopt new payment practices such as digital wallets and “Buy Now Pay Later” options.