Cryptocurrency payments: an expected revolution

Blockchain Chronicle. The use of cryptos as a currency to buy goods and services remains anecdotal. Central banks can change that.

On January 3, 2009, the Bitcoin network was launched, at the time without much fanfare. The seven-page whitepaper that describes how it works clearly presents it as a monetary payment system. If thirteen years later, the interest of Bitcoin and by extension of the crypto market is no longer demonstrated, we can only note that the main use of the latter remains in the field of investment, even speculation. The use of cryptocurrency as a currency to buy goods and services remains anecdotal, at least in Europe and the United States. This article aims to explore the reasons.

However, the advantages of cryptocurrency payments are numerous: a merchant who wants to accept this payment only needs to install an app on his smartphone without having to create an account anywhere and without paying any commission for the transactions received. . Transaction security is strong as it is impossible to cancel a transaction already sent on the network. And in e-commerce, the advantages are also interesting: payment is much safer than credit card, almost instantaneous receipt and, once again, transactions cannot be canceled.

It should also be noted that payment giants Visa and Mastercard now offer credit cards that allow you to pay in crypto assets even at merchants that do not accept them. The system is simple: when the credit card makes a payment of 20 euros, an equivalent amount in Bitcoin or other cryptocurrency present in the customer’s account is simultaneously debited and sold on the market.

The number of sites that accept cryptocurrency payments is also increasing: Uber Eats and Rakuten are the latest brands to declare that they accept payments directly in France. However, volumes are not taking off: a recent study shows that only ten million dollars worth of Bitcoin is exchanged per quarter for product purchases, against thirty billion exchanged per day for investment. So what are the objections?

The first problem is that when people buy crypto, it is predominantly for investment purposes. Most of the time, they don’t want to spend these assets, but cultivate them. There is, therefore, a very strong reluctance to spend assets whose price has exploded several times in the past, and many expect a repeat of such an event.

We can remember Gresham’s Law, according to which “bad money drives out good money”. Investors will thus prefer to get rid of their euros, especially in times of inflation, and keep their crypto-assets, waiting for a market recovery.

It should also be considered that in Europe, at least, payment by credit card or cash remains simple and does not present major inconveniences, with the exception of security issues on e-commerce sites. Therefore, at the moment, there is no real issue that requires the deployment of innovative payment solutions such as crypto assets.

The other major obstacle to paying in cryptocurrencies is taxation. The state considers that the purchase of a product in cryptocurrencies represents a tax event in excess of €305 per year, just as a sale of bitcoins purchased for investment purposes would be. Taking into account each payment made individually and calculating the corresponding taxes represents, therefore, an effort that few people are willing to make on a daily basis, while traditional means of payment do not require this effort.

Does this mean that cryptocurrencies will never be able to fulfill their primary purpose of becoming currencies and will they continue to be investment or speculative products? Not necessarily. For example, in the field of international payments between companies, they can represent an interesting asset: a secure and almost instantaneous means of payment can represent interest for the payment of a supplier in China or Brazil compared to international transfers that present a series of difficulties, even today.

The arrival of central banks in this ecosystem is, of course, turning around, with central bank digital currencies. We can consider as almost ideal for payment a crypto-asset with the security and speed that the use of a blockchain allows but without investment problems, since its price does not vary, nor taxation. Central banks could thus fill this necessary niche for everyone to adopt cryptocurrencies.

This would not mean that Bitcoin and other decentralized cryptoassets would become useless: in addition to their growing interest as an investment vehicle, the public getting used to using central bank coins on a daily basis could broaden their interest in all assets in this market, this time as means of payment.

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