Bitcoin, Litecoin, Ethereum, and Ripple. Cryptocurrency is constantly in the news these days. Despite the hype, many B2B’ers still haven’t decoded cryptocurrency. It’s understandable. To wrap your head around cryptocurrency, you must change the way you think about currency and how payments are made. But, you do need to be thinking about it. More and more B2C is accepting cryptocurrency, and when B2C sets a trend, B2B usually follows. Here’s our take on the relevance of cryptocurrency for eCommerce and how we see it impacting B2B eCommerce in the future.
What is Cryptocurrency?
Cryptocurrency is a completely digital form of peer-to-peer payment. It doesn’t have a physical counterpart like euros or dollars. And unlike physical currency, cryptocurrency only exists in the digital world. Cryptocurrencies have no intrinsic value like gold or silver. The supply of cryptocurrency is not controlled or manipulated by any central bank, financial institution, or government. There is no Bank of Bitcoin.
How is Cryptocurrency Different?
In regular B2C or B2B transactions, government-issued currency changes hands. Payment can be made in the form of cash, wire transfer, check, money order, or credit card payment. These transactions are regulated by governments, involve the use of one or more intermediaries, and are potentially subject to fraud.
Cryptocurrency transactions are completely different. They occur without banks or financial institutions and are made using blockchain technology. Blockchain is basically a distributed ledger technology. If you’d like to know more about blockchain, take a look at this article that explains blockchain technology in plain English. Cryptocurrency changes hands through direct, peer-to-peer transactions that are executed and verified using an algorithm that is distributed on every node on the network. They are faster than checks, ACH, and wire transfers and are much more secure. The transactions require fewer players and that means fewer fees. Did we mention that transactions are completely secure?
Most B2B payments are made with checks, wire transfers, and automated clearing house methods that are slow, costly, and subject to fraud. They put layers between the buyer and seller. Cryptocurrency and blockchain technology can help alleviate these pain points.
Cryptocurrency Is Going Mainstream
What was once just the purview of nerds and geeks is quickly becoming mainstream. Bitcoin, Ethereum, and other digital currencies are accepted in more places than you think. Digital currency could be the future of eCommerce payment and the innovators are already starting to use the technology. Consider this:
- 33% of Europeans surveyed in 2016 considered digital currency to be the future of online spending
- 57% of CFOs either plan on integrating blockchain or are considering doing so by the end of 2018
- Microsoft, Newegg, and Dish Network all accept payment in Bitcoin
- Intuit offers Pay by Bitcoin for its QuickBooks Online customers.
- You can buy merchandise from Overstock.Com with several cryptocurrencies
- Subway accepts Bitcoin for meal payment
- Expedia accepts Bitcoin payments for travel
- PayPal currently accepts Bitcoin and is considering adding Ethereum as a method of payment
The ability to transmit payments globally in multiple currencies with complete security and without the interference of banks or governments makes cryptocurrency an interesting solution for payments in emerging markets and third world countries. While hard to believe, the majority of the world’s population is unbanked. With just a computer and an internet connection, there’s nothing standing in the way of commerce. And because cryptocurrency transactions are irreversible without the receiver’s consent, the risk of fraud and chargebacks is mitigated which is a huge benefit in B2B eCommerce.
Risks of Cryptocurrency
Once you understand cryptocurrency and blockchain, the benefits are obvious. However, there are risks associated with accepting the digital currency. These include volatility, government regulation, and the rise of competing currencies. Because the technology is still in its infancy, no one knows which cryptocurrency will win out.
Volatility. The value of Bitcoin and other digital currencies is highly volatile. The designers of the original blockchain technology limited the total amount of Bitcoin to 21 million BTC. There is a limited supply. By comparison, all governments manipulate their currency to control inflation, employment, and investments. Bitcoin is impervious to this type of manipulation. That makes it a haven for those fleeing government-backed currencies. As these players enter and leave the Bitcoin market, they influence the perceived value of the currency. However, one issue with today’s cryptocurrency is that it can skyrocket or plummet in value within seconds. For example, when it was found that Bitcoin was the currency of choice for drug trades on the Silk Road marketplace the value of Bitcoin came crashing down.
Government Regulation. The most frequently cited risk to cryptocurrency is that it’s only one regulation away from becoming illegal. Bitcoin, Ethereum, and other digital currencies can only exist if governments do not prohibit them. For the most part, governments have been taking a ‘wait and see’ attitude with the digital currency. No country recognizes digital currency as a substitute for that country’s legal tender. In the U.S., Bitcoin is not recognized as a currency, but as a money services business. It is taxed as an asset much like real-estate property. Canada recognizes digital currency as a commodity and transactions are considered barter for business purposes. The E.U. hasn’t issued any decisions on cryptocurrency, but the member countries have acted independently. Not convinced that countries won’t outlaw digital currency? Think again. Russia, Vietnam, Ecuador, and Bolivia are just a few of the countries that have banned payment with cryptocurrency.
Competing Currencies. There are hundreds of competing digital currencies. The government of Iceland issued its own cryptocurrency while outlawing all others. Kik raised $100 million from its token sale last fall, introducing yet another currency. Oddly enough, the one place that digital currency is not accepted is the world’s largest marketplace, Amazon. Amazon has remained mum on Bitcoin, but it is speculated that the slow pace of processing digital currency transactions has kept the marketplace behemoth on the sidelines. In October 2017, Amazon did purchase amazonethereum.com, amazoncryptocurrency.com, and amazoncryptocurrencies.com. It’s hard to tell if this is signaling future business expansion or just protecting the brand. If Amazon were to decide on entering the cryptocurrency space, it will immediately be the 800-pound gorilla in the room and potentially spell death for lesser-known cryptocurrencies.
Cryptocurrency in B2B eCommerce
It makes sense to let B2C take the hard knocks that come when applying a new technology like cryptocurrency. But B2B should pay attention and learn lessons from the early adopters. Both blockchain technology and cryptocurrency are worth monitoring closely. It is quite possible that they will evolve to eliminate the risks in B2B transactions. By keeping your eyes on this hot trend, you may calculate that the risk of adopting cryptocurrencies may be less risky than taking no action at all.