What a buzzword right?
It seems like everywhere we turn in 2021 someone is talking about it. Whether you've been reading Elon's tweets or listening to your friend explain how his dad bet his retirement savings on the future of Dogecoin"¦most of us have heard of crypto or know someone who has dabbled with this new form of currency.
But for all the talk of crypto being a currency, it hasn't really been used as one much. Even if KFC and Microsoft say they'll accept bitcoin (accounting giant PwC has also recently joined in), how often are people using crypto to pay for everyday purchases?
Well, not that often-according to Buy Bitcoin Worldwide, most (90% of) people who own bitcoin right now use it as an investment, or for savings-not for making purchases." 90% of people who own bitcoin right now use it as an investment"¦not for making purchases."
There are still some though who use it like a currency, as it's meant to be used. El Salvador is actually planning to be the first country in the world to accept crypto as legal tender. But there are a few challenges that come with using bitcoin the same way we use dollars.
Crypto and Payment Processing
Cryptocurrencies make use of what are known as crypto "wallets" whereby users exchange monies directly with each other via an online application. Exchanging crypto then is more akin to ACH or bank transfers than it is to credit card processing.
The main job of payment processing companies is to facilitate the transactions that take place between customers and businesses, and ensure businesses get paid. Crypto differs from fiat currencies again here because there is no need for a middleman to facilitate the actual transaction like there is with credit cards. The way that companies are getting involved and making money is instead by making wallet management and exchange easier.
So who's to say that processors couldn't pivot (like some have expanded to ACH payments) to include wallet management in their merchant services offering? As of right now though, crypto is still such a new and inconvenient way to pay, that there is little incentive for these companies to move toward helping their merchants accept it.
Stripe is one payment processor that did try to facilitate bitcoin payments for a while, but they ended their support for the service in 2018, citing fluctuating prices, long wait times for transactions, and the wider trend towards trading bitcoin (rather than using it as a true currency) all as barriers to accepting it as payment.
One company called Binance is partnering with Visa to offer a crypto currency debit card, which allows users to spend their crypto cash with a tap, just as they would with their debit card with funds from their bank account. To me, this seems like the most likely path forward for crypto if it is to be used day-to-day; resembling some kind of liquid trading account.
The Challenges with Crypto
Crypto is Unregulated
Without going too far down the economics rabbit hole,the essence of how money works (and moves) involves a lot of smart people regulating a ton of different things. You may hear, for example, that the Bank of Canada is lowering or raising interest rates, which can serve to "heat" or "cool" housing markets and impact inflation rates (inflation essentially being the devaluation of currency over time as buying power erodes).
Governments have a responsibility to regulate their currency through various economic policies so that their citizens have the buying power they need to live, and so that trade between countries can thrive. The problem with crypto currencies is that they aren't subject to a national bank's authority, so when the currency fluctuates, it does so independent of government policy and can have drastic ramifications for currency holders. In essence, it's hard to plan and strategize around a currency that is entirely unpredictable.
Another thing to note about the lack of regulation in cryptocurrencies is the absence of consumer protections; for example, when it comes to purchasing a product that isn't what was promised or when a fraudulent transaction takes place.
Crypto Experiences Major Ups and Downs
Companies that have tried to facilitate crypto as a form of payment have all come up against the wild ebbs and flows of the currency's value. All currencies fluctuate, but none rise and fall in such a volatile manner as crypto currencies (which can drop by thousands of dollars overnight all because of a single tweet).
This makes it hard to use bitcoin to pay for a cup of coffee, for example; when a cup of joe will run you about three bucks, and at the time of writing a single bitcoin is worth somewhere in the realm of $35,000 USD.
Crypto Presents Some Moral Dilemmas
Remember, one of the key inspirations behind Bitcoin's development was to create a decentralized currency that couldn't be tracked. As a result, when crypto is used to buy stuff, it's often stuff you wouldn't want the government (or anyone else) to find out about.
Think of crypto as like using cash at a motel instead of a credit card. When you pay with this method, no one can trace the funds back to you. It's great if you're a vigilante on the run from the cops-but not so great if you're the cops.
For this reason bitcoin has been used to finance a great deal of illegal activity, including purchasing drugs, weapons, and even for human trafficking; and while governments can't prevent the physical currencies they issue from being used for these things altogether, cash is still easier to keep track of than crypto. Some of the primary ways in which the currency is being used does beg the question of whether the world should really want a new currency that plays into the hands of criminals.
Wait Times and Fees
Initially, crypto was intended to flow easily between users, but facilitating transactions now can take such a long time (with the price of the currency bouncing up and down in the meantime) that by the time a purchase is made, the amount no longer matches the purchase price. There's no instant approval with crypto transactions like there is with credit cards.
In addition, the fees associated with exchanging crypto (bitcoin transaction fees for example) have reached a point that now rivals bank wiring fees, making trading bitcoin just as (if not more) expensive than sending regular money around the world.
Cryptocurrency is making some big waves in the world right now, but it still seems a ways off from becoming a usable currency. Overall, there are some challenges with crypto that, while they might not be insurmountable, are certainly hindering the development and uptake of digital cash among the general population.
At the end of the day, money is something that people assign value to so we can use it to trade with each other and advance our livelihoods. It can be gold, silver, paper, potatoes, or crypto, but all forms of currency are only really valuable if you can use them, and it remains to be seen what the value of crypto will be and how much use it will get.