Paying with crypto has long been at the center of the discussions of why cryptocurrencies exist and why they are useful.
But despite promising growth and excitement during crypto’s bullish phases, payments with crypto still remain a fringe niche at best. Cointelegraph interviewed both merchants and industry leaders to find out why.
Who uses crypto today?
As a general rule, crypto payments are used where they make sense. This remains the case for darknet markets, which according to a January 2020 Chainalysis report continue posting new volume highs.
Despite their tiny share of the overall crypto activity, marketplaces selling primarily illegal goods simply cannot use traditional payment mechanisms. Nevertheless, these markets pale in comparison to the traditional cash-based drug trade, whose volume is estimated at approximately $400 billion yearly.
In legal settings, Crypto.com’s CEO Kris Marszalek told Cointelegraph what kinds of products see meaningful usage of crypto:
“It’s still mostly crypto stuff. So we’ve got Travala, which is the travel merchant that accepts crypto. Ledger.com […] when we launched on day one we were doing similar volume to Mastercard.”
Marszalek cited figures from “leading crypto payment providers” BitPay and Coinbase Commerce, which report yearly volumes of $1 billion and $200 million, respectively.
“The numbers are very small,” Marszalek said bluntly.
Indeed, compared to Visa’s figure of $2 trillion for a single quarter in 2018, crypto payments have a long way to go.
The problem with crypto payments
Marszalek identified a series of issues that are preventing crypto payments adoption, with lack of trust one of them:
“For the vast majority of the merchants out there, just like for the vast majority of retail banking users out there, crypto is still something unknown, something they still didn’t learn to trust.”
Peko Wan, the chief ecosystem officer of crypto point of sale provider Pundi X, told Cointelegraph a similar story:
“For the mainstream, the general perception toward crypto are ‘complicated to use’ or ‘risky to own cryptos.’”
This attitude is reflected by a U.K.-based business owner operating a recreational plane simulator, whom Cointelegraph interviewed. Despite adding the crypto payment option, they said that “no one has ever paid using crypto.” They further said to be “wary of all cryptos as there are so many scams out there.”
Even among crypto enthusiasts, payments are a low priority use case. This is best exemplified by the issuance of WBTC for Ethereum decentralized finance, which is now more than double the size of the entire Lightning Network.
Marszalek believes that part of it is the chicken and egg problem, which limits the amount of merchants accepting crypto:
“Because if you only have 50 million people in crypto globally, merchants have very little incentive to deploy this, unless they are in a business that is covering a similar demographic as crypto.”
Stablecoins to the rescue?
One of the biggest problems of crypto payments is the volatility of even the most established assets. Marszalek believes that most people only know about crypto’s price swings, “which is not really conducive to merchant adoption,” he added.
Furthermore, the premise of many crypto payment providers is that merchants can completely avoid exposure to crypto’s volatility.
Marszalek believes that “stablecoins are super powerful” for e-commerce transactions, citing their speed and cost, and sees Crypto.com eventually creating its own stablecoin as part of its vision of a complete ecosystem.
Claudio Barros, the Portugal-based owner of DBR Electronica and one of merchants using Pundi X’s solutions, believes that stablecoins would be a great addition to the ecosystem:
“Any improvement in stability of coins will be a benefit, we need a range from pegged coins to super volatile coins to cater for different needs.”
Will crypto payments become a reality after all?
Crypto is competing both with established e-money systems like WeChat in China, and novel technologies like Calibra. Marszalek believes that it is better than either of those, both due to better performance and better privacy.
Marszalek, who is based in Hong Kong, personally witnessed how the cashless transition in China left him unable to pay in a Beijing restaurant, as Hong Kong WeChat does not work in mainland China. Either way, WeChat’s extreme level of surveillance makes him feel uncomfortable.
Wan also pointed to developing countries, noting:
“For the past two years, we also observed that in the countries where the local currency has decreased over time [people] are more aware of crypto or interested in having cryptos.”
For Crypto.com, payments are just at the “beginning of the beginning,” Marszalek said. But he strongly believes that it is the company’s most important product, which will “take our overall platform to a hundred million users in five years.”
For crypto in general, the same statements could likely be made as well.
Congress Fears US Is Losing Battle to Malware and Darkweb Cyberweapons
In a May 28 virtual roundtable before the congressional Subcommittee on National Security, International Development and Monetary Policy, witnesses and congresspeople alike feared that they are not keeping up with criminals hacking the financial system.
Criminals have better resumes than government agents
One witness, Guillermo Christensen, a partner at law firm Ice Miller, admired the cyber talent operating illegally:
“We are always playing catch up with the criminals. […] It’s very hard to find people who are as qualified as some of these criminal hackers, frankly, to take apart their schemes and trace them.”
Another issue is the overclassification of government information, presenting a barrier to private-sector security efforts. “The information sharing between the private sector and the public sector is very valuable but it could be better,” saft Naftali Harris, co-founder and CEO of SentiLink, an anti-fraud software company.
Fintech’s vulnerability during the pandemic
In response to a question from subcommittee chairman Emanuel Cleaver (D-MO) as to the vulnerability of fintech to hacking, cybersecurity strategist Tom Kellermann warned that the current system is vulnerable to new developments and increasingly remote workflows:
“Financial institutions have the best security in the world, but because of telework and because of the customized malware or weaponry that are being developed in the darkweb, primarily the Russian-speaking darkweb. […] They’ve learned ways around the perimeter defense of the network security espoused by the standards of regulators around the world.”
Kellerman continued to explain that telework allows hackers easy access to well-defended financial networks via the worse-defended home systems of executives. He further called out APIs as adding another element of risk:
“The greatest vulnerability of fintech is they build out these APIs that allow them to connect to other financial institutions as well as other fintech vendors. Those APIs themselves are being exploited left and right.”
During the hearing, Chairman Cleaver commented that “It seems that we are losing this battle.” His closing remarks were no more optimistic. “Your comments were very informative but also very scary,” the chairman said.
JPMorgan Chase Settles Crypto Credit Card Lawsuit for $2.5M
Banking giant JPMorgan Chase settled a 2018 lawsuit recently, with a $2.5 total payout — the result of unclear fees charged when using credit cards for crypto purchases.
A May 26 court document detailed:
“The Court notes that Defendant JPMorgan Chase Bank, N.A., f/k/a Chase Bank USA, N.A. (“Chase” or “Defendant”) has agreed to provide a Cash Settlement Amount of an aggregate of $2,500,000 in cash.”
The lawsuit stemmed from lack of clarity
The legal action took flight later in 2018, seeing Brady Tucker, Ryan Hilton, and Stanton Smith press charges against the banking entity.
Reuters said in a May 27, 2020 brief:
“In a motion filed Tuesday in Manhattan federal court, plaintiffs said the settlement would result in class members getting about 95% of the fees they said they were unlawfully charged.”
March news settled in May
The plaintiffs’ legal action requested compensation for the deceptively-charged fees, as well as $1 million for damages, with a 75-day window for settlement detail submission, as of Cointelegraph’s March 2020 article.
The movement was unopposed, according the May 26 court document.
“JPMorgan is not admitting wrongdoing as part of the deal, according to the motion,” Reuters noted in the brief.
Emin Gün Sirer’s AVA Labs to Distribute 2M Tokens Ahead of Full Launch
AVA Labs, a blockchain protocol founded by Cornell’s Emin Gün Sirer, is planning to distribute 2 million tokens in its final testnet before the project’s full launch in summer.
The so-called “Denali Testnet” will serve as the final stage of the AVA network testing before AVA’s mainnet launch. The new testnet will allow each validator to earn up to 2,000 AVA network’s native tokens, AVA Labs announced on May 29.
AVA Labs tokens are not yet listed on any cryptocurrency exchange and are not available for public purchase, a spokesperson at AVA Labs told Cointelegraph.
The testnet to run from June 1 to June 15
While testnet registration starts immediately on May 29, the first phase of the testnet launch will start on June 1. At that time, participants are expected to set up live nodes, an AVA Labs representative explained. The Denali testnet consists of three core challenges, which run until June 15. While AVA Labs expects to move to its mainnet in summer 2020, there is no specific date for the full launch of the project, an AVA Labs’ spokesperson said.
The Denali testnet follows AVA’s first successful testnet known as “Cascade.” Launched in mid-April 2020, AVA’s Cascade testnet amassed 300 developers setting up and running validator nodes.
AVA network is purportedly going to be the “Internet of blockchains” once launched
Initiated by Sirer in 2019, AVA Labs is an open-source platform and a layer 1 protocol for launching decentralized finance, or DeFi, applications and enterprise blockchain solutions. The platform is designed to unify DeFi applications and blockchain deployments in one scalable and interoperable ecosystem. According to AVA co-founder, Kevin Sekniqi, the best way to describe the new protocol is the “Internet of blockchains.”
In late April 2020, AVA Labs’ Sirer said that as much as 95% of all existing cryptocurrencies do not represent any tech advancement and should be regarded as nothing but scams.
AVA network’s token is not to be confused with Travala.com’s proprietary token, AVA. Backed by the world’s largest cryptocurrency exchange, Binance, Travala.com is a blockchain-based travel booking platform that features payments and loyalty rewards in its native crypto, AVA token.
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