Recently, PayPal (PayPal shares - ticker PYPL) has expanded its growing set of cryptocurrency services outside the United States: now, account holders will be able to buy and sell cryptocurrencies such as Bitcoin, Ethereum, Litecoin and Bitcoin Cash. The move puts PayPal in the same space as fintech challenger bank Revolut and other advocates of cryptocurrencies, as well as regular Bitcoin exchanges. The Robinhood trading app has followed suit and at least one country, El Salvador, has adopted cryptocurrency as the shadow currency of the US dollar.
Does this mean that retailers and online merchants should follow PayPal's lead and embrace cryptocurrencies as a legitimate payment method for purchasing goods and services? As it stands, discretion is the best part of value. Like the president of the European Central Bank, the mainstream market should for now remain "highly speculative and suspicious" of the cryptocurrency phenomenon.
A vast market opportunity
Let's review the potential downsides of this vast market. Cryptocurrencies offer a lower transaction cost, so the merchant and buyer can save up to 2% of the transaction cost against a credit card fee. Some customers may be drawn to cryptocurrencies because they have not been able to access a traditional retail bank account - they may live in a part of the world that has historically been difficult to manage or have low credit. These are huge benefits for retailers looking to break into new markets. Finally, cryptography also offers the idea of reducing the risk of fraud (in both directions). Bitcoin transactions are written in the ledger, then "documented" in the code, so transparency is built in.
These are the positives. On the other hand, we see little of the average consumer buy-in for the new style currency. Does anyone you know use this form of currency to shop online? Unless they're an evangelist or cryptocurrency investor, or perhaps a libertarian or tech researcher, they're unlikely to be users.
So there is a clear adoption problem. Compared to standard forms of trading and buying, cryptocurrency has an unattractive adoption rate of less than 1% in most developed nations. Of course, it's a different story in the countries of Africa, Asia and South America. The reality is, however, once you look beyond the propaganda and operational drawbacks, you will notice that there are a significant number of them.
The absence of regulation
There is no consumer protection available with cryptocurrency. If a virtual currency wallet is defrauded, there is little or no chance that those funds can be recovered. There are also just a huge number of scammers to keep track of - the suggested figure is over 4.000. And finally, there is no authority in the form of a central clearing bank to monitor and provide the necessary support in place. The absence of these regulatory bodies is, for some players in the history of cryptocurrencies, the appeal of this type of currency in the first place.
Consequently, all of this is very attractive to criminals and scammers. The other problem area for cryptocurrency is energy consumption. The bitcoin transaction could consume more energy than the whole family uses in a month, and the mining process has been estimated to create 191 tons of carbon dioxide versus 13 tons of carbon dioxide for gold. No wonder China has banned the practice altogether in trying to improve its carbon PR. With a growing interest in sustainability, are environmental concerns that big and hard to hide something that customers and many merchants will find acceptable?
