In the first expansion of its growing set of cryptocurrency services outside the US, PayPal just announced it is to allow UK customers to buy, sell and hold a range of cryptocurrencies. That means account holders will be able to buy and sell Bitcoin, Ethereum, Litecoin, and Bitcoin Cash-a move that puts the online payment service in the same bracket as fintech challenger bank Revolut and exchanges such as Coinbase.
And given that the UK is PayPal's number two market globally, and the country is an important global fintech hub full of digital-savvy consumers who are early adopters of new financial services, digital payments, and cryptocurrencies, surely this means that bitcoin is now respectable? Does this mean merchants everywhere should jump on the bandwagon?
Not quite yet. Even though stock trading app Robinhood has swiftly followed suit, and at least one country has decided to adopt cryptocurrency as a shadow currency to the US dollar. Let's set out the pros and cons to see why-and why, all things considered, the President of the European Central Bank is correct to judge that that cryptocurrency asset remains "highly speculative and suspicious."
On paper, a $2tn market
Crypto offers a lower cost of transaction, so the merchant or the buyer can save up to 2 per cent against a credit card fee. You might get customers who want to work with you, but who up until now haven't had a real bank account, or are from parts of the world that historically have been hard to service. Those are strong benefits for an e-commerce player, as is the idea of reduced risk of fraud (in both directions). Famously, each Bitcoin transaction is written in the ledger, so "documented" officially, or, at least, in code. And on paper, this is a vast market-we're talking two trillion dollars.
But once you look at the cons, you see there are a significant number of them. There is little consumer buy-in. Ask yourself if there is anyone in your network actually using cryptocurrency to buy items online? Unless they are someone who attends all the conferences and has invested heavily in it, then it is unlikely they will be a user. Compared to standard forms of exchange and purchase, this is a very unattractive adoption rate, under 1% in most developed nations at least. It's a different story elsewhere, however.
Another negative is the high volatility in the exchange value of such currencies. Transactions can also be agonisingly slow. It can easily take hours or even days until the transaction becomes verified, which is wholly opposite to what you would want from a purchase or a sale, from either the buyer or the merchant's perspective.
There's also zero consumer protection with cyber money. If anybody steals your virtual currency wallet, then it has disappeared for good, and we frequently see stories like this. Nobody can address the problem because there's no central clearing bank monitoring and support in place, and the absence of these institutions is the attraction of this kind of currency in the first place.
And as crypto is unregulated, it's very attractive for criminals and fraudsters. There is also a large number of them-the figure suggested is over 4,000. The other negative argument is nergy consumption. 1 bitcoin transaction might consume more energy than your whole household uses in a month, and it's a huge amount of energy compared to other forms of "mining". The Bitcoin mining process creates 191 tonnes of carbon dioxide versus 13 tonnes of carbon dioxide for gold. With more and more interest in sustainability, these environmental concerns are something most customers, and most merchants, will find unacceptable, for PR reasons if nothing else.
What crypto's future holds
While there are some theoretical advantages associated with cryptocurrency, there are far too many real-world flaws. The e-commerce market is known for the fast adoption of new technology, but cryptocurrency is not a practicable option yet, except in some edge cases. If you are a criminal and want to smuggle 50 million from one country to another, then ransomware cryptocurrency is the payment mode you need to adopt.
Given that 99 out of 100 edge cases will end up on the wrong side of the moral register, the logic of PayPal's move is not defensible. Soon, could crypto become a viable medium of exchange in regular e-commerce? Ultimately, yes, but it's unlikely to happen within the next 10 years.
When we get to such a point, then having the right platform in place to manage crypto payments effectively for e-commerce will be important. And if it materialises, it will be on big marketplaces like Amazon far earlier than direct to consumer. But for almost all of today's e-commerce ecosystem, there's no need to follow PayPal's lead here-there are too many real-world disadvantages.
Let's resume the cryptocurrency discussion when some or all of these big negatives are addressed-and not before.
The author is Alexander Graf, Co-Founder & Co-CEO of e-commerce B2B software leader Spryker and co-author of The E-Commerce Book
