Retail and Cryptocurrencies
The popularity of cryptocurrencies is growing exponentially over the years. The total market cap of all cryptocurrencies is currently nearing $400 billion. Bitcoin (the first cryptocurrency, launched in 2008 by Satoshi Nakamoto) has grown in value from less than $1 to more than $15,000. Unlike any central bank currency, Bitcoin has a total fixed supply of 21 million coins, over 18 million coins out of which are already in circulation. Over the years, especially with the current pandemic and subsequent economic crisis, the US fiat dollar has been devaluing rapidly. That led to inflation and loss in the money buying power. Why? Well, unlike Bitcoin, the US dollar can be printed (or minted) with a click of a button. And that’s exactly what’s going on these days. The United States Federal Reserve has been printing trillions of US dollars. If analysts at Goldman are to be believed, this currency is expected to lose up to 20% of its value over the next few years. During the same period, Bitcoin is supposed to be strengthening in value. In the early days of Bitcoin, crypto enthusiasts believed it would replace the fiat currency someday. However, it turned out to be a long-term store of value similar to that оf gold. So, will cryptocurrencies ever be able to replace fiat currency? Will you ever be able to pay for groceries by some crypto? Let’s find out and ponder about the crypto prospects in retail.
Cryptocurrencies in Retail So Far
The early adoption of Bitcoin attracted a lot of investors shopping for it. However, there’s only a handful of merchants accepting Bitcoin payments at the moment. The most notable of them are Overstock.com, Microsoft, Newegg.com, and Reeds Jewelers Inc. Just recently, PayPal, the world’s biggest online payment platform, made the announcement on letting its users buy Bitcoins. This statement opened the doors for more than 425 million new Bitcoin users around the globe. Furthermore, the evolution of cryptocurrency has drawn the attention of many enterprises. Shopify, a multinational e-commerce company, is currently considering the option of moving into the cryptocurrency retail market. The company already supports payments in over 300 digital currencies (including Bitcoin, Ethereum, Litecoin, etc.). For traders outside of the tech industry, the way they are diving into the world of cryptocurrency might seem like a moving wave. However, it’s crucial to have a clear understanding of the emerging technologies and the potential benefit they might bring to business. The more shopping sites accepting crypto payments will be designed, the more opportunities the retail market will get.
The Regulatory Bottleneck
According to the survey conducted by Fidelity Survey, more than one-third of financial institutions worldwide have invested in digital assets or derivatives. However, when it comes to retail, the world’s regulatory bodies are still skeptical about crypto. Currently, governments don’t support the majority of digital currencies. They attribute this strategy to the volatile nature of cryptocurrencies and issues such as money laundering, fraud, etc. In the United States, the federal agencies have been taking a hardline against custodial cryptocurrency exchanges ever since the ICO-boom of late 2017. The crypto businesses are forced to develop, implement, and maintain an anti-money laundering compliance program. In big economies like that of China or India, the government’s restrictions are often confusing crypto enthusiasts. On the one hand, China recognized Bitcoin as a virtual currency (it means that using BTC as a legal currency can land users in trouble). On the other hand, the government has recently launched its own digital Yuan. A similar twisting can be seen in India as well. Last year, the country’s central bank put a complete ban on cryptocurrencies. However, earlier this year, the country’s supreme court repealed the ban calling it “disproportionate and unconstitutional”. Still, by the time the supreme court ruling came, several crypto-focused companies were already bankrupt. In summary, most countries still don’t have systems regulating the use of cryptocurrencies. Governments still experience a lot of confusion when dealing with digital currency's legal use while preventing illegal transactions.
Potential Challenges & How to Address Them
There’s no doubt, the adoption of cryptocurrencies is skyrocketing even in the face of potential challenges. However, there are several questions remaining to be solved. They are connected with the following concepts:
The volatile nature of cryptocurrencies is one of the biggest hurdles for retail. In the world of cryptocurrency, it’s not uncommon to see a 10-20% price fluctuation within just a couple of hours. We have witnessed situations where Bitcoin's value rose by 15 percent and declined by 20 percent within a day! If we’re going to welcome cryptocurrencies to the market, it’s necessary to reduce their volatility. However, as we witness the rise of stablecoins, the volatility-related issues get many more chances to be solved. Stablecoins present a specific kind of cryptocurrency designed to minimize volatility. The stablecoins can be pegged to a fiat currency or another cryptocurrency to derive their value. Finally, using stablecoins on a daily basis can lead to adopting cryptocurrencies in wider retail.
Unfortunately, hacking and online robbery aren’t mere words for the crypto enthusiasts. In the first quarter of 2018, the cryptocurrency world experienced a shock when $1.1 billion in cryptocurrency has been stolen. It was just a few months after the bitcoin value started to peak. The same year, a centralized cryptocurrency exchange based in Tokyo, Coincheck, lost over $530 million worth of cryptocurrency to hackers. The security issues have been proven to pose one of the most significant crypto challenges. Due to the crypto’s decentralized nature, it’s more difficult to guarantee security for those working with it. Blockchain technology removes the middleman. By doing that, it also opens the gate for those aimed at stealing funds. With the lack of a central authority, the chances of recovering stolen coins become slim as well. However, with the rise of awareness towards security issues, the number of hacking incidents is decreasing. Crypto exchanges have started to safeguard users’ funds in cold wallets with multi-sig keys. They are also encouraging users to secure their accounts with two-factor authentication, anti-phishing keywords, and addresses’ whitelisting. At the same time, several Bitcoin stores and crypto shops that accept bitcoin for business transactions have also started to include additional security layers to protect themselves from hackers.
Ease of Usage & Liquidity
The concept of trading cryptocurrencies is still fairly new. Even though this approach shows great promise for the unbanked world population, it still lacks intuitiveness. The use of cryptocurrencies is very limited. It wouldn’t be wrong to say that the whole crypto ecosystem is still in its early stage; it’s still very far from mass adoption. Apart from working as a complex protocol, cryptocurrency is also tough to liquidate. Even with the rise of crypto exchanges, only a handful of them can deal with the high volume of transactions from a traditional retailer. To solve these problems, traditional banks need to embrace cryptocurrency. In this case, retailers would have a reliable way of managing their cryptocurrency transactions.
So, whether cryptocurrencies will ever be used in retail? Well, we hope so! A day will probably come when we’ll do away with fiat currency. Certainly, it won’t happen in a snap. We’d have to work hard in this direction to make this world more stable and seamless. One day, students will have to study crypto, politicians will propose various regulations regarding it, and consumers will use it to pay for daily necessities. Now, it’s totally up to us to make it our new reality.