Cryptocurrency is at a point where it’s starting to get serious, but the crypto revolution still faces a lot of opposition. Which side will you take?
Digital coins still have a mixed reputation. Many influencers are against it, saying that it’s not the disruptive technology that was promised, but rather a new way for the rich to get richer. Even if you’re eager to use cryptocurrency in your daily life, you’re still limited by the lack of infrastructure and slow market adoption.
Has the time come when we all need to start taking crypto seriously, or is the revolution still getting warmed up? Perhaps this article will help you figure it out for yourself. We’ll talk a bit about cryptocurrency basics that everyone should know by now, and then we’ll see how crypto is being used in e-commerce.
Cryptocurrency primer 📚 (with blockchain basics)
Cryptocurrency is digital money. It’s based on Distributed Ledger Technology (DLT) and cryptography.
A distributed ledger is basically a document that's stored and updated on all devices in the network at once. Nobody can change this document single-handedly. If you do, the network will see that your version of the document is false, and replace it with the real version. This means that distributed ledgers are perfect for storing transaction information because they can't be changed or hacked easily.
You already know the type of distributed ledger that crypto is based on—that’s right, it’s blockchain. It’s exactly what the name says, a digital chain that links together endless blocks that contain transaction information (“user A sent BTC100 to user B”).
Cryptography keeps the blockchain safe, stops people from inserting false information into it, and enables the process of mining crypto coins.
It was the combination of proof-of-work with other cryptographic techniques that made Bitcoin (and its blockchain) such a revolutionary technology. Since then, a lot of other types of cryptocurrency have been created, using other cryptographic techniques (like proof-of-stake instead of proof-of-work).
Proof-of-work basically forces the network to work hard to confirm transactions. There are limitations to how many transactions can be confirmed per second. Also, it takes a huge amount of processing power because, in order to confirm a transaction, miners in the network basically need to solve extremely hard math puzzles. This process is essential for the blockchain to keep growing, so the blockchain rewards miners with a coin(s) for their effort.
Proof-of-work is a big reason why there’s growing opposition to cryptocurrency. Bitcoin uses so much power to confirm transactions that if it were a country, it would be in the top 30 countries by energy consumption. Ethereum, Bitcoin’s main and more versatile competitor, is already planning to retire proof-of-work and switch to proof-of-stake, which could reduce the energy needed to mine Ethereum by 99,9%.
The goal of cryptocurrency is to provide people and machines with a way to perform direct, peer-to-peer transactions without any middlemen. At the moment, the most popular use of crypto is trading various coins on public exchanges (like Blockchain.com or Binance.com). In theory, the uses of cryptocurrency and blockchain are endless. It could eventually simplify the way we perform all of our digital transactions, and open up endless new streams of revenue.
To store your cryptocurrency, you need a digital wallet. It can be a literal hardware device (basically an external drive) or a web-based wallet. Storing and managing crypto funds at this moment in time is more difficult than any traditional currency, so it’s not for everyone. With the different types of wallets and security measures you need to take, it can be confusing even for users that are generally good with digital technology.
Popular cryptocurrencies 💰
There are thousands of cryptocurrencies out there, but few of them are useful and matter on the market. Below are a few examples.
The most popular virtual currency of them all, Bitcoin, was invented in 2009 in hopes of decentralizing the financial sector. Many people use the name “Bitcoin” as a synonym for cryptocurrency even though there are over 6,500 other coins.
The popularity of Bitcoin comes at a price. Five years ago, you could buy one Bitcoin for no more than $500. The price can vary wildly from hour to hour, day to day—in the second half of 2020, Bitcoin’s price went from $10,000 to over $50,000, which is hard to explain even for the smartest economists.
Ethereum’s market share might be a lot smaller than Bitcoins, but software developers like it, so it’s the second most popular cryptocurrency currently. Rather than just being an alternative currency, Ethereum works as a decentralized software platform that enables developers to create smart contracts and build decentralized applications (dapps). Smart contracts are the basis of Ethereum—they’re basically conditional code blocks stored on the Ethereum blockchain. Whenever a specific condition is met for a smart contract, it triggers another action specified in the contract (user A transfers ETH100 to user B -> user B transfers video file to user A).
Dogecoin appeared in 2013 as a joke made by two developers, Billy Markus and Jackson Palmer, who simply wanted to have a laugh at the silliness of cryptocurrency hype. Now, it’s dearly endorsed by Elon Musk, and Dogecoin (named after the famous Shiba Inu doge meme) is starting to be treated as an actual currency. What’s unique about Dogecoin is that while Bitcoin has a limited number of coins, there is no limit to the number of Dogecoins that can be created.
Compared to the previous cyber currencies, where their value regularly goes up and down (especially if Elon Musk is involved), Tether was instead created as a “stable coin.” Stable coins are a type of cryptocurrency tied to a specific asset’s value, preventing drastic changes in price as it might happen with other cyber-currencies. Most of the available stablecoins use the dollar as their primary asset, but there are also coins that are connected to the value of euro, or yen. With Tether, users receive one token for every dollar they deposit, and they can also convert their tokens back into dollars at any time, at the same exchange rate.
Monero is basically the favorite coin of the deep web. This coin is all about anonymity and privacy, so it’s perfect for all illegal transactions happening behind the gates of the Tor browser. In fact, South Korea banned “privacy coins” like Monero because they’re untraceable, which makes them perfect for criminals
State of cryptocurrencies in e-commerce 🛒🛍️
In some places, the public opinion on crypto is gradually changing, especially if you look at some of the biggest industry players turning to digital currencies.
At the end of March 2021, Paypal announced that their US customers would now have an option to use Bitcoins, Ethereum, or Litecoin coins with their Paypal wallet—and be able to convert them immediately into their desired currency, without any additional transaction fees. In addition, stores that have Paypal payments available can now accept cryptocurrencies as well, without any extra fees or integrations required.
eBay, the well-known e-commerce leader, also stated some intention of allowing customers to pay for orders with digital coins in the future. And while Amazon only accepts Bitcoin payments indirectly at the moment, they recently posted a job listing for a ”digital currency and blockchain product lead”—maybe they’ll add cryptocurrency to their payment methods soon?
And that’s barely the start of the list of businesses that either already adopted cyber currencies or plan to use them in the future—Microsoft, Shopify, Magento, Etsy, Home Depot, and Starbucks (just to name a few) all welcome the users of Bitcoins or other digital coins.
However, if you’re not interested in adopting cryptocurrency at the moment, you don’t really need to worry about it. Unless there’s a real business need for it, you’ll probably be better off with fiat currency for now.
Basics of accepting cryptocurrency payments 💳
Adding cryptocurrency payments in your store can help open up your business to a new, tech-savvy customer group. Additionally, cryptocurrency transactions are processed almost instantly (at least when compared to a credit card or bank transfer), which helps to speed up the time between the sale and the order shipping.
How can you accept cryptocurrency in your e-commerce store? There are two main ways:
- directly to your wallet,
- using a third-party payment processor.
For the first method, you will need to create a virtual wallet for yourself to store the digital coins. There are plenty of virtual wallets apps and software that you can download onto your phone or your computer, many of them are free, but you might want to use a premium offering here. You can also get a hardware wallet that stores your cryptocurrency on a hard drive and acts as a physical safe that nobody can access without your permission.
The second option is to use a third-party payment processor, such as Coinbase or BitPay, and let them handle the entire payment process, including converting the cryptocurrency into fiat. You will have to pay a processing fee, but those are typically far lower than Paypal or credit card fees.
It might sound easy, but even small choices can make a big difference here. Choosing the right wallet should take you a while because some offerings are scammy (again, the crypto market is simply not regulated enough to avoid this).
In any case, if you’re doing anything with cryptocurrency, you’ll need to adopt the best cybersecurity practices you can. And I don’t mean passwords with big characters, small characters and numbers. You’ll need to become a cybersecurity master.
We haven’t reached the point of mass cryptocurrency adoption yet, and we’re far from it. For the average user, crypto is still more of a novelty than a necessary part of daily life. The impact of blockchain and smart contracts will ultimately reach farther than cryptocurrencies and possibly improve all aspects of our digital, as well as real, lives.
When it comes to cryptocurrencies, at the moment you’re not missing a lot if you’re not racing to adopt crypto. The volatile price changes on crypto exchanges and the artistic use of NFTs (which deserves a separate article) are exciting and real examples of how crypto is already influencing the world. Still, it's not for everyone, at least for the time being.