With the massive ups and downs of the Cryptocurrency market in the past three months, as well as the increased media and corporate attention, this new technology and money transfer system has become more and more mainstream, with the “Big Three” - Bitcoin, Ethereum and Litecoin headlining the industry news. Below are the top considerations when it comes to mass retail adoption, as well as the possibility of Crypto being incorporated as a Digital Payment System by E-commerce stores in the near future. We will discuss the above 3 most-popular coins, which might be the next “revolutionary” commerce game-changer - and why.
Before diving into the subject, here are a few basic facts in simple terms to help you get a better understanding of the system these Digital Coins use to process transactions: All Bitcoin, Litecoin and Ethereum work using a system called “Blockchain” - a public ledger on which transactions are being processed or “confirmed” by computers solving specific algorithms. Each user stores Digital Currencies in a digital wallet, which has an unique address for each currency. It also has an unique - or private - key. A transaction successfully happens by matching a user’s public key (or address) with his private key, in the blockchain, after a number of “confirmations” have been received on the shared system. The blockchain essentially uses algorithms, and every time a transaction is confirmed an algorithm is successfully “resolved”.
1. Speed & irreversibility of transactions
Due to the high computer power involved in Cryptocurrency transactions, these are in theory very quick. What makes them interesting and different from classic currency transactions is: due to the Blockchain system and the way they work, transactions are anonymous and Irreversible. In an E-commerce payment scenario, it would then be a challenge designing a process through which a high volume of transactions from different users can be mapped against their accounts, recognised in a time-efficient manner and - in case it’s needed, refunded the same way as the classical currencies used at the moment which are circulating through payment systems such as Visa. A change that has happened mainly to Bitcoin transactions lately (but can be observed for the other currencies too) is an increase in the transaction fees, due to the increased volume of confirmations needed and number of users exchanging or buying coins in the network. This also affects the speed of transactions too, which depending on the blockchain usage level can now take up to 30 minutes for Bitcoin to finalise.
There are technology improvements planned for this year to help Cryptocurrencies gain a mass adoption, improve speed and lower fees such as the Lighting Network, however they are still under development and there is uncertainty around the time when these solutions will be fully implemented. Due to the above reasons, at least at the moment, crypto payment might not be the ideal solution for most low-medium value purchases
At the moment, Litecoin is seen as the most effective “possible” coin to be used for low-value transactions, as it uses mostly the same principles as Bitcoin while still keeping low fees and a better transaction speed. What’s more, Charlie Lee, the founder of the coin, announced last year there are some very big news for 2018 in regards to its mass adoption, which helped in generating rumours regarding the new payment method being incorporated by companies such as Amazon or Facebook.
2. Customer behaviour changes
As a customer-oriented business, all changes and improvements in the client interaction should have as a core the specific customer needs and desires. It is no different with changes related to the payment infrastructure and the way money are used for transactions. As E-commerce is still increasing, different industries tend to see different performances as to their customers in-store vs. offline willingness to buy, as electronic payments are still earning people’s trust - mainly when analysing an older demographic. Is it therefore essential as an E-commerce business, before thinking of adopting a crypto currency payment system in the future, having a very good understanding of our customers and being able to estimate how fit this solution would be for them, and if they would make any use of it at all. Presently, this could be considered as a viable option only for very niche-specific businesses: an example would be a company with relatively savvy customers, having a passion and understanding of digital, as well as a good financial situation. While in the long term customer behaviour will start to change and part of them will become more accustomed to this way of payment, presently there is not a strong general demand for Crypto payments online.
At the moment, there is also no easy way of integrating such payment option in a company’s website either, and until this will be developed - with massive companies such as Amazon making the necessary investments in R&D as well as raise mainstream interest - focusing on this subject and allocating resources in the short term might not be your best choice.
3. Do it for the brand?
Rumours are that - as mentioned above - companies such as Amazon and Facebook are already developing the infrastructure for accepting Crypto payments, with Amazon buying new related domains. As their branding has been constantly growing into the direction of “innovative digital-oriented brands” and leaders when it comes to E-commerce (in Amazon’s case), there is no wonder they would be the ones to make the biggest efforts in maintaining this position, as well as use the “trendiness” of the topic to earn PR coverage while building expectancy amongst part of their customers. As a smaller E-commerce business, however, allocating such resource towards developing these solutions would be very hard and most probably financially unfeasible. However, if in your industry and for your customer group, having this alternative payment method would represent value and would help your business in its branding and market positioning, there is surely opportunity to be exploited in the long term. Keep an eye out for the developments, start educating your customers through informative content and even announce your interest in adopting Crypto payments - but still be aware this will most probably be a long journey and the most benefit you might be able to take from it in the short/medium term would be related to your Brand Reputation and positioning.
Food for thought:Remember Crypto currencies are highly volatile, and based on the market evolution in the past year, they can see 50% or more growth or depreciation month on month. While they can be good opportunity for investors willing to go into a high risk/high reward environment, an E-commerce business might find it difficult to account for earning, losses as well as keep up with the volatility of a specific coin over the course of a month - or financial year. Moreover, the product pricing using a Crypto coin would be very dynamic and would probably have to be integrated with an exchange system as well as other algorithms for calculating the desired profit margin per product.
In short, these are the top 3 things to look at when thinking about Bitcoin, Ethereum or Litecoin in the context of E-commerce, and the main questions you should ask yourself before diving deeper into the subject. It is certainly an exciting opportunity and we will keep seeing a growing media attention as well as adoption with time, however this will be a more long-term integration in the present payment alternatives due to both technology and customer behaviour.
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