While cryptocurrency has gained great popularity in recent years, we are still yet to see mass use of cryptocurrency for everyday payments. There are many reasons for cryptocurrency’s lack of adoption in commerce, including ease of use and the speculative aspect. However, the rise in popularity has led to more businesses expressing interest in cryptocurrency. This has led many businesses to offer cryptocurrency payment options. The emergence of stablecoins, a cryptocurrency which is supposed to maintain a specific monetary value, may accelerate cryptocurrency use in e-commerce.
Not all communities have the same access to the payment options most of us use today. There are over 3 billion people that do not have access to basic financial services. This makes transacting over the internet extremely difficult. Participation in e-commerce is impossible if you do not have a form of payment that is easy to access and can transcend borders. Cryptocurrency offers an unprecedented level of economic inclusivity. Anyone with an internet connection can hold and access their cryptocurrency, allowing for participation in global e-commerce markets.
The global expansion of commerce and the addition of online shopping has led merchants and consumers to trend towards E-commerce, everyday shopping or business conducted via the internet. E-commerce requires a significant amount of trust between uncoordinated parties. Additionally, the consumers, merchants, and manufacturers that exchange inventory and capital often use different financial institutions to facilitate commerce.
While e-commerce has opened up a global market, this has brought up several issues for banks and lenders that now need to work with untrusted institutions across several borders. The biggest issue for these financial institutions is the settlement of funds and fees. The transfer of money across borders to unrelated organizations takes several days. Introducing blockchain technology to e-commerce may lessen the friction associated with e-commerce, making for a more efficient flow of capital. These benefits extend to the merchant, who now does not have to wait as long for their earned funds to reach their bank accounts, allowing for maximum efficiency. Significant portions of a small or medium business’ budget go towards paying these cross-border fees. Whether it be faster settlements between banks or a more consistent cash supply for merchants, blockchain technology is set to change how e-commerce is conducted.
Fraud is an inevitable problem in any type of commerce; online purchasing is no exception. Chargebacks as the result of fraudulent purchases come at the expense of the merchant. Money that they thought was already earned is then taken away from them by their bank, by no wrongdoing of their own. This cause of this is simple: merchants are currently using outdated technologies such as credit cards. The introduction of credit cards predates the popular usage of the internet and the technology is not equipped to facilitate reliable, irreversible transactions. Banks have passed the liability of losing funds to fraud to the owners of these businesses. A small business on a tight budget can be greatly affected due to chargebacks, interrupting normal business operations resulting in further loss of funds. Utilizing blockchain technology would not only eliminate the possibility for chargebacks, but it could also largely eliminate the need for them at all. As long as users keep their private keys secure, their cryptocurrency is safe. The finality, also known as immutability, offered by blockchain technology eliminates the difficulties of credit card chargebacks that were previously an inevitability for merchants in e-commerce.
The payment options of yesterday were never intended to account for the rise in popularity of microtransactions. Apps and streaming services have struggled with how to properly reward creators based off of the use of their service. Second layer technologies, like the Bitcoin’s Lightning Network, allow users the ability to conduct direct transactions on a per-view basis, possibly even paying per minute of consumption.
A benefit of shopping in the physical world is that you maintain some sort of digital privacy. Of course, you would have to make an actual appearance in a store to make a purchase which is not the most private action. However, those purchases do not require your personal data to change hands. Your personal information is not required to make a purchase. This is in stark contrast to e-commerce, which often requires the purchaser to disclose their credit card, identity, and address. This has led hackers to target large corporations, which have become a treasure trove of personal data. Security has become a major aspect of e-commerce and can be supplemented by blockchain technology. By using cryptocurrency for payments, a direct purchase can be made while limiting the amount of data the user has to expose.
Every one of these problems present in e-commerce have one thing in common: they make transacting more costly. If introducing blockchain technology into the e-commerce process can solve even one of these issues, overall costs are more likely to decline. Each third-party service rendered unnecessary by blockchain technology will result in fewer costs passed on to the merchant and consumer. There is more than a privacy argument to be made; blockchain technology provides the prospect of fewer costs to the merchant, making them more competitive in their respective areas of focus.
Blockchains offer the e-commerce industry hope. However, there are issues that blockchain technology has to overcome for it to reach mass adoption. Currently, blockchains have yet to reach sufficient transaction speed to meet the demand required for the technology to work. While this problem is being addressed by many different projects, it makes a large reliance solely on blockchain technology unrealistic. One such project looking to address the scalability issue is the Lightning Network. The Lightning Network is a second layer solution that utilizes Bitcoin, Litecoin and other blockchains. Suppliers, merchants, and consumers can open payment channels which allow for recurring payments of a limited amount of bitcoin. These channels do not constantly sync their state with the blockchain, making purchases with cryptocurrency a faster and cheaper option than is currently offered today.
Of course, any type of e-commerce is going to have to be ready to deal with the changing regulatory landscape that affects business practices, including inventory management and shipping. Head to our next lesson to explore how blockchain technology is disrupting supply chain management.