Interest in cryptocurrency is growing, and fast. With some pretty major brands, marketplaces and payment processors announcing their adoption of crypto, this digital payment method is firmly on the radars of retailers across the globe. Whilst not everyone thinks the world is ready for cryptocurrency payments, it’s certainly getting harder to ignore the impact that crypto and the blockchain technology on which it’s built could have on ecommerce.
Whether you’re an ecommerce merchant just dipping your toes into the cryptocurrency waters, or you’re sold on the idea of crypto payments and are exploring how to accept them in your online store, it’s important to keep on top of how this trend is unfolding. After all, awareness and understanding today could help forge a valuable opportunity for your business in the future.
If you can’t make head nor tail of cryptocurrency and its coins, fear not. We’ll start off with the basics – what exactly is cryptocurrency and what are the most popular types? We’ll then explore the increasing popularity of crypto within the ecommerce industry, before examining the benefits and drawbacks its usage presents. Finally, we’ll take a look at how merchants can accept cryptocurrencies on their online stores. Let’s get started.
What is cryptocurrency?
Put simply, cryptocurrency is a form of digital payment, based on complex encryption, that can be directly exchanged amongst its users for goods and services. In investment circles, it’s regarded as an asset with a variable value, rather than as cash with a fixed value.
Cryptocurrencies use decentralised control – in other words, they’re not controlled by one centralised authority (likes banks and governments) in the way traditional currencies are. Instead, transactions are verified by a decentralised network of thousands of computers, without a central server. They use encryption techniques to control their use and administer their release.
All cryptocurrencies use something called distributed ledger technology, or DLT, which refers to shared databases where information about every transaction within a particular currency is recorded.
The most common DLT is blockchain technology. Groups of transaction information, known as blocks, get added to the database one by one, creating a linear chain of blocks that can be seen by everyone. Information within the blockchain can’t be edited or deleted.
The cryptocurrency that started them all, Bitcoin was created in 2009 in a bid to decentralise the financial sector. Up until 2011, it was the only cryptocurrency in operation.
Today, there are thought to be more than 4,000 cryptocurrencies available worldwide1, although Bitcoin remains the most noteworthy model in digital use and rules the markets as the largest cryptocurrency2. Such is its dominance, that the term “Bitcoin” has almost become synonymous with “cryptocurrency”, with the two words often being used interchangeably.
Bitcoin may continue to lead the pack, but here are a few alternative cryptocurrencies you might want to be aware of:
Ethereum: The second largest digital currency by market capitalisation3, Ethereum is based on a payment system that uses a token called Ether. Moving beyond just facilitating financial transactions, this is now a platform that uses advanced blockchain technology to build and host decentralised apps.
Litecoin: This digital currency, created by a former Google engineer in 2011, shares many similarities with Bitcoin, although its creators claim that transactions are processed much faster because of its quicker block generation rate.
Ripple: Also known as XRP because of the type of encryption system used, Ripple was designed for users who need to handle more complex, higher value transactions.
Cryptocurrency for consumer payments
As we touched on earlier, cryptocurrencies are already infiltrating the ecommerce industry, creating quite the buzz amongst retailers and consumers. With a growing number of businesses turning to digital currencies as a form of payment, could their commercial use soon become standard?
A recent announcement from payments giant Paypal certainly suggests so. At the end of March 2021, the company launched Checkout with Crypto, a feature which allows its US customers to seamlessly use crypto coins (Bitcoin, Litecoin, Ethereum or Bitcoin Cash) to pay at millions of online retailers. Users can convert their cryptocurrency into fiat currencies like euros and dollars, with no additional transaction fees. And for retail companies, there are no additional integrations or fees required. Checkout with Crypto is expected to soon expand to PayPal customers in Europe and other parts of the world. This latest move by PayPal signals a significant acceleration in the mainstream adoption of cryptocurrencies.
And, just a matter of weeks ago, online marketplace eBay signalled that it is open to the possibility of accepting cryptocurrency as a form of payment in the future4. The company has previously spoken publicly of its excitement around potentially being able to use cryptocurrencies to “expand global ecommerce and make it more frictionless and affordable for consumers”5 – is it only a matter of time now before we see this vision come to life?
Tech conglomerate Facebook, whose various platforms are increasingly tapping into the world of social commerce and presenting merchants with more options to sell online, has also jumped on the crypto bandwagon. The social networking giant recently confirmed plans to launch its own new cryptocurrency, Diem, later in 2021. According to reports, the aim is “to introduce a sophisticated blockchain digital payment system that will permit real-time ecommerce transactions with Diem stablecoins”6.
A number of retailers are embracing cryptocurrencies as an official form of payment too, including online travel agency Expedia, who accepts Bitcoin through a partnership with Coinbase, high-street beauty retailer Lush, who takes cryptocurrencies as a form of payment on its website, and millennial/gen-z skincare brand Wake, who allows customers to pay with crypto on its Shopify-powered store. Plus, major UK retailers such as Marks & Spencer, Tesco and John Lewis all accept gift cards via Bitpay. Which retailers will be next in allowing consumers to pay with their crypto wallets?
Benefits of accepting cryptocurrency on your ecommerce store
It’s clear that cryptocurrency and the technology behind it is gaining traction in the ecommerce industry, and fast. But what are the benefits of accepting this type of payment on your online store?
Quick transactions: Whilst traditional transactions can be rather slow, blockchain technology allows for quicker, more direct transactions that can help streamline your business cash flow. And for consumers, the immediate processing of cryptocurrency means orders can be shipped instantaneously – perfect for satisfying shoppers’ increasing demand for fast delivery.
Market expansion: Embracing crypto transactions could widen your target market and lead to an increase in new customer traffic. Plus, there are benefits for brands looking to expand cross-border, as cryptocurrencies can make international transactions simpler, cheaper and faster.
Increased security: Due to their complex encryption, cryptocurrencies are very difficult to steal and counterfeit, which reduces the risk of fraud in digital transactions.
Lower fees: Fees from third-party services are significantly reduced for some cryptocurrencies, which is good news for ecommerce sellers and the added transaction charges they often face for credit cards and other payment methods. Lower transaction costs can help to make your business more profitable.
Cleaner data: Blockchain technology can keep both transactional and consumer data cleaner. This increased accuracy is important for retailers’ marketing efforts, paving the way for more effective targeting and helping to avoid wasted spending.
Better UX: Adopting cryptocurrency as a payment method on your ecommerce site provides your customers with more choice at the checkout. This flexibility enables customers to pay the way they want to, which provides a better all-round shopping experience, helping to increase conversion rates and reduce cart abandonment.
Potential drawbacks of cryptocurrencies in online retail
Despite the rise of cryptocurrencies in the online retail sector, not everyone believes that they’re ready for mainstream ecommerce. It’s worth doing your research before taking the plunge into the world of crypto.
We take a look at the other side of the (bit)coin below:
Price volatility: The value of cryptocurrencies can vary wildly, which poses uncertainty for both businesses and consumers. Things could get particularly tricky in the case of returns if the cryptocurrency value has fluctuated since the time of purchase!
Thousands of alternatives: With thousands of cryptocurrencies available, and new coins appearing on a regular basis, deciding on a digital payment method to accept on your ecommerce website could be a bit of a minefield.
Trust issues: Although adoption is picking up pace, the reputation of cryptocurrencies and the blockchain technology behind them has been tarnished somewhat by negative associations highlighted in the media. As a result, trust in these digital payment methods is still quite low amongst the public.
Cashflow disruption: Having incoming revenue in cryptocurrency, whilst your outgoing payments (to suppliers and staff, for example) are in cash, could prove to be problematic.
How to accept cryptocurrency payments on your ecommerce website
If you’re considering accepting crypto payments on your online store, there are two options to think about:
#1 Payments through a personal wallet: This option allows you to accept payments directly into your personal digital wallet (which can be stored on a computer, smartphone or hard drive).
#2 Payments through third-party processors: In this case, third-party services like BitPay, Coinbase or NOWPayments process transactions on your behalf. If you’re a Shopify merchant looking to accept cryptocurrencies, you can enable one or more of these alternative payment methods from the ‘Payment providers’ page of your Shopify admin. Once enabled, you can accept over 300 digital currencies, including Bitcoin, Ethereum and Litecoin. Find out more on the Shopify Help Centre.
Of course, as we mentioned earlier, merchants who are integrated with PayPal can now accept cryptocurrencies from US consumers, and we don’t think it will be too long before you can accept crypto from customers in other parts of the world too.
For ecommerce retailers looking to expand their market share whilst offering their customers a faster and more convenient way to pay for products and services, cryptocurrency could be the answer. Although some people remain sceptical about the mainstream adoption of cryptocurrency and the impact it could have on ecommerce, signs from across the retail industry are pointing to its increased acceptance and usage.
Whether or not you’re sold on the thought of accepting crypto payments on your ecommerce site just yet, keeping up-to-date with current trends in the world of cryptocurrency will mean you are poised to adapt your ecommerce strategy quickly and get ahead of the competition!