How do you pay for your tea or coffee? Chances are you’ve probably moved on from paying with cash and started on plastic. We are now, once again, heading towards a new system of how we pay for things, one that is starting to gain pace. First, there was cash, which eventually evolved into credit and contactless. Now, representing the next leap in the trading of money, there’s cryptocurrency.
In a 2017 survey from CreditCards.com, 17% of the 1001 adults said they used their credit card to pay for purchases costing less than $5. That represented an 11% increase from the previous year, as reported by CNBC.
Notably, it was the Millennial generation that was most likely to use their credit card for small purchases. Of the findings, the survey found that 21% paid with plastic for items less than $5. This was compared to 16% for Generation X and 12% for Baby Boomers.
On the surface, though, credit card transactions are pretty simple: a customer either swipes or taps their card and before they know it the transaction is complete. For Visa, this means its VisaNet can handle around 150 million transactions each day and more than 24,000 transactions per second, according to the company themselves.
What was even more interesting from the survey, though, is that 80% of Millennials were just as likely to use cash as they were payment apps such as Apple Pay. According to the article, the use of mobile payments just wasn’t quite catching on.
Fast-forward to a 2018 survey by Mintel, a global market researcher, and it suggests that the use of mobile payments is on the rise. So much so, that it found that nearly 40% of US consumers had used at least one digital payment service, whereas 60% indicated that they were already regular users of mobile payment apps. Not only that, but 51% stated that they had expressed an interest in using a mobile payment app for purchases rather than using a credit or debit card. This was an 11% increase from 2016.
Change, however, is on the way.
Merchants Follow Customers’ Needs
Binary District Journal spoke with Corbin Page, product lead at Meridio, a ConsenSys project that is creating a blockchain platform for shared property ownership, to find out how using crypto is steadily becoming a new payment choice for consumers.
“The true peer-to-peer ethos of the crypto community was born from removing the multiple intermediaries involved in credit card transactions and a return to a buyer/seller exchange similar to cash”
Just as humans have evolved, so too has the way we pay for things. According to Page, the payment use case - buying coffee at the corner store - is one of the earliest applications of Bitcoin. This was before ‘store of value’ or ‘digital gold’ were the dominant narratives, he notes.
“For example, the true peer-to-peer ethos of the crypto community was born from removing the multiple intermediaries involved in credit card transactions and a return to a buyer/seller exchange similar to cash,” he adds.
Yet, the use of crypto for purchase payments is still very much in the early stages of development. On top of that, making a payment by a mobile app, contactless or credit card is fairly simple. Comparing the traditional methods to what’s currently available with payment use cases involving the blockchain, on issues like high transaction throughput, low price and stability of value, few blockchains can even compete at the moment.
Compared to how a Visa or Mastercard transaction works, a blockchain transaction simply works differently.
Let’s take the familiar characters, Alice and Bob.
Alice pays Bob $100. Once the transaction has been put into place, computer nodes in the blockchain work to confirm that Alice has got $100 to pay to Bob. Once this has been confirmed as true, the transaction is recorded in the ledger and Bob receives his $100. Each transaction, on average, takes about 10 minutes.
It’s understandable then that this method of payment hasn’t taken off in quite the way people may have been envisaging. That, however, is not deterring the crypto community.
Scalability solutions are being developed as Layer 1 improvements like increasing block size, or Layer 2 solutions which are built on top of the core protocols such as xDai, a private blockchain, Plasma or the Lightning Network.
In Page’s opinion, xDai has a few additional benefits over Bitcoin. Namely, that it’s cheaper, faster, more stable, and it’s easier to onboard users with its Burner wallet.
“On fees, xDai costs less than $0.01 per transaction vs. Bitcoin’s $0.18 per transaction, and during the recent ETHDenver event, approximately $40k in value (4,405 transactions) was paid to food truck operators with less than $0.20 in total fees,” he adds.
“Consumers are wary to pay in Bitcoin in case the price rises dramatically, and they end up paying thousands for a couple of pizzas”
He says, however, that xDai requires some trust in the proof of authority (POA) network private chain, as opposed to the completely trustless nature of Bitcoin.
“Stability is another benefit that xDai provides since merchants are wary to be paid in Bitcoin in case the price drops significantly,” Page says. “And consumers are wary to pay in Bitcoin in case the price rises dramatically, and they end up paying thousands for a couple of pizzas.”
Page believes, though, that of the many different scalability solutions within crypto one of the most promising lies with the Lightning Network. For him, it’s fast, cheap, more decentralised and more trustless than private blockchains.
“As a result, there’s a lot of momentum towards widespread adoption by crypto wallets and applications,” he says. “For instance, Grid+ recently announced that they’d support the Raiden Network, similar to the Lightning Network, to let consumers pay for electricity in Texas.”
Where Can You Use Crypto?
The number of places accepting Bitcoin and crypto is steadily growing.
It’s possible to use crypto on six of the seven continents: Africa (Casablanca, Ghana, Kenya, Morocco, Tunisia, Zambia and Zimbabwe), Asia (China, India, Japan, North Korea, Pakistan, South Korea, Taiwan, Thailand and Vietnam), Europe (Austria, Denmark, France, Germany, Greece, Portugal, Spain and the UK), North America (pretty much all the US states), Oceania (Australia, Fiji and New Zealand), and South America (Argentina, Bolivia, Brazil, Chile, Colombia, Paraguay, Venezuela and Uruguay).
A few examples of where you can use crypto include CheapAir, CurryUpNow, KFC, Helen’s Pizza, Microsoft, Overstock, Rakuten.co.jp, ShopJoy, SFU Bookstore, Subway and ThePinkCow.com.
This selection is just a small drop in the ocean of the places where someone can pay with crypto. For instance, according to 99 Bitcoins, over 20,000 merchants in Japan accept bitcoin.
Wouldn’t Visa or Mastercard be Better?
Even though traditional credit card companies deliver an easy experience for users, they too have their limitations, according to Page. These include the 3% fee per transaction for the merchant, costly point of sale hardware and the risk of fraud and chargebacks.
“Visa and Mastercard are companies that provide a great service for their customers, while blockchain provides these services natively in a protocol, not controlled by any one company,” Page says.
“A simple Ethereum transfer has an approximate price of $0.03, regardless of the amount being transacted. However, a $100 transaction via credit card would be 100x that fee”
Compared to what’s already in place, in this instance Visa or Mastercard, the blockchain has the ability to bring down the cost of a transaction significantly. For example, a simple Ethereum transfer has an approximate price of $0.03, regardless of the amount being transacted. However, a $100 transaction via credit card would be 100x that fee.
“Additionally, if the transaction takes place on a public blockchain like the Ethereum mainnet, the audit trail is immutable and any accounting or tax applications can automatically pull the records and build web applications on top of them,” says Page.
For more complicated transactions, Page notes, smart contracts can be used to automate fees or tax collection and distribution, using transparent logic that can be amended or updated as business logic changes.
A Look to the Future
The way we do things is steadily changing. Mastercard and Visa may still dominate the way people pay for things, but the rising environment around the blockchain is slowing shifting how we can conduct business.
Not only that but, with the ever-changing blockchain environment, what the community is experiencing now is likely to change in the not-so-distant future. For Page, the industry is moving towards a world with hundreds of different, interoperable blockchains that have their own specific trust, performance, price and privacy tradeoffs.
“For instance, JPM Coin may eventually integrate with Bitcoin, so users can deposit cryptocurrency directly into the bank, shifting value from the public Bitcoin blockchain to the company’s internal JPM Coin blockchain,” he says.
Saying that, though, the industry is still in its infancy stage, and there is certainly room for improvement. But just as everything needs time to evolve, it may be that in the not-so-distant future, a significant number of people will be relying on a private or public blockchain to purchase a cup of coffee.
Just as designs to get cryptocurrency into the average consumer’s wallet are being formulated, Apple has made sure that it still dominates the tech headlines by announcing its Apple Card. The sleek, metallic card has been built in partnership with Goldman Sachs and Mastercard, and is built into the Apple Wallet app on the iPhone. The privacy of the card is such that, Apple claims, it will never know anything about where a customer shopped, what they bought or how much they paid for it.
The card offers many of the benefits inherent in the ideal cryptocurrency - instant payments, no fees, no credit card number meaning increased security. What is ultimately lacks, though, is decentralisation. The Apple Card is a clear attempt to muscle in on the personal credit market traditionally dominated by the banks. Users will be switching up one form of debt for another, a far cry from the egalitarian principles of Bitcoin. Yes, users will flock to the Apple Card on the convenience it offers and the brand name alone, and this may well be the start of an Apple foray into crypto, but to see it as direct competition for Bitcoin is to miss the point.
Illustrations by Kseniya Forbender
To contact the editor responsible for this story:
Margarita Khartanovich at [email protected]
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