Removing Friction is Integral for Crypto Adoption

Removing friction from the act of purchasing makes it an easier, more enjoyable experience. This incentivizes spending. Similarly, removing friction from the onboarding process for merchants to accept crypto can massively increase adoption rate. In this article, I dive deeper into the idea of removing friction when it comes to both paying with and accepting nano, and how it can lead to rapid adoption. Furthermore, the hurdle we have to overcome in this process and several solutions.

Do you know why so much R&D is put into finger scanning in phones, and facial recognition to unlock your device? Millions of dollars in research and development just to shave 1 motion and half a second off of this particular action of opening your phone. Why? It’s to make opening your phone as frictionless as possible. Making the road from ‘your phone in your pocket’ to ‘you seeing content’ as smooth as possible. To make that step from the physical into the digital world a seamless experience.

(Photo by Vladimir Mun on Unsplash)

The same can be seen when it comes to payments. It started with physical money, which you had to count by hand, physically hand over to the cashier, who then had to count it as well, put it into the register, count the change, then hand you the change which you have to quickly count as well and finalize the transaction. That’s a lot of friction! Not a very smooth, seamless experience. But then we got cards. At least here in the Netherlands, you had to swipe your card, type your PIN number, and voila! Payment done! That’s a lot smoother already! From there it went on to NFC, simply holding your card against the device and that’s it. So smooth. Now you can even just simply tap your phone against the device.

(Photo by Clay Banks on Unsplash)

For phones, and connecting to the digital world, there’s a lot of motivation behind making the process frictionless. You could argue that the process needs to be as frictionless as possible so that digital content and advertisements have an easier time influencing you and your spending habits, your thought patterns, biases and political opinions, etc. These things are difficult to influence in the physical world, but digitally we consume information so fast that we are easily influenced.

Frictionless payments

Why then, is it so important for payments to have a smooth user experience?

To explain it simply, payments have been made so easy and frictionless in order to incentivize spending. Humans are very lazy. We don’t like putting in effort to do simple things. If buying something takes 10 minutes, we might postpone it, procrastinate. If it takes 10 seconds, however, we’re more likely to make a purchase. If it’s easier to do, it will be done more. Besides that, removing friction when paying makes it a more enjoyable experience, leading consumers to purchase more. This is especially true nowadays for online payments. In the Netherlands, we have an online payment method called ‘iDeal’, used by dutch banks. I remember, just a few years ago, we needed to use our card and an e-dentifier to buy something online. If I remember correctly, the process went something like this:

Step 1. Get your debit card.
Step 2. Search your house for your e-dentifier (a small device necessary to make online payments).
Step 3. Insert your debit card into the e-dentifier.
Step 4. Insert your PIN code into the device.
Step 5. Choose ‘Send payment’ on the device.
Step 6. Insert the payment number, provided in the payment terminal on the website, into the device. Press ok.
Step 7. The e-dentifier will give a response code. Type this response code into the website.
Step 8. Finalize payment.

This whole process could take 5–10 minutes, depending on how organized you are (I had to search for my e-dentifier quite often…)

(Photo of e.dentifiers, dutch payment devices)

The time and effort it took to make a purchase online was definitely a turn-off. It’s interesting how just those few minutes and extra steps can influence purchases and spending habits so much. Nowadays, you can easily make an online payment with your phone by scanning a QR code and typing in your pin number. Takes less than a minute to make a purchase. The actual payment process might take 20 seconds or so nowadays.

Remember, this easier online payment experience is just for iDeal payments within the Netherlands. When I want to make payments internationally, the friction is immediately back.

(Photo by Tim Gouw on Unsplash)

You can see how creating smooth and seamless user experiences are integral to the success of a product. This goes for really anything, the easier it is to integrate and use, the higher chance of success and speed of adoption. This is a large part of the selling point for nano. Payments, both physically and digitally, are a smooth, seamless and frictionless experience. Same for integrating it for point of sale. Accepting nano can be done in less than 2 minutes simply by creating an account on nault.cc for example.

(Nault.cc, a popular wallet for nano)

The off-ramping hurdle

The biggest hurdle we face currently is off-ramping for nano. This is partially what still holds back merchant adoption. I’m sure most merchants wouldn’t mind accepting nano in their business if it doesn’t carry a cost, opens them up to a rather large community of enthusiasts that would like to pay with that currency, and is easy to integrate. The problem is that most merchants don’t want to carry the risk involved with fluctuations in purchasing power. That’s understandable. So to solve this, while keeping nano adoption easy, there needs to be a way to off-ramp the nano they receive to fiat that is as frictionless as possible. Does that exist currently? Maybe in some places. But generally, KYC regulations (Know Your Customer, requiring identification by sending a copy of your passport or drivers license) create a hurdle that leads to friction for merchants. It requires time, effort, and trust in the service used for conversion to set up. Signing up for an exchange to off-ramp fiat can take days in some cases. This kind of friction is less than ideal and slows down the adoption of nano. So… now what? How could we solve an issue like this?

(Photo by Interactive Sports on Unsplash)

Solutions

A micro-economy using nano

One way is for business owners to simply not off-ramp nano. Instead, they can use the nano they receive to pay for goods and services at other businesses. This would create a micro-economy using nano. Even though this would be the most frictionless and ideal solution, it also means that business owners carry the risk in the change of purchasing power of nano. Furthermore, this would require more businesses, for instance the businesses they buy their supplies at, to accept nano. It is a slow start, with only a small percentage of business owners that are comfortable taking on some risk to push this idea forward. However, this is also how Bitcoin grew from a small niche internet currency to being accepted by hundreds of businesses worldwide. Both online, and in brick and mortar stores, even without any easy off-ramp. It did take Bitcoin about a decade to achieve this, and eventually this adoption started to slow down due to the friction associated with the currency itself and setting it up. For nano, this might happen a lot quicker though, due to the ease of use and seamless process to start accepting it and transacting with it. Furthermore, Bitcoin already laid some groundwork. People have started understanding, trusting and using digital money more in the last few years. This micro-economy phenomena might be a way to kickstart nano adoption without easy off-ramp possibilities, or it might end up being a result of nano adoption with off-ramping.

Off-ramping within existing solutions

Another solution that does involve off-ramping would be off-ramping without business owners needing to go through a KYC process, keeping it frictionless. But how, if identification is required by regulations? One way would be to integrate nano on- and off-ramping in existing solutions like banks. They already know their customers. Having a service like a bank act as an exchange for nano and fiat would make it easy for business owners to start accepting nano in their business and have it automatically converted to fiat currency. In the end, this solution would probably require more stability in the fiat value of nano, might require a certain level of adoption beforehand, and an increased trust in the network from an institutional side. For a bank to implement something like this would bring risk and cost, both for development and legal. But it might pay off as well. Who knows?

Peer to peer off-ramping

What if business owners sell their nano back to their local community? Someone pays with nano at a business, the business owner then sells that nano back to other people in the community with a small profit margin. This makes it easy for people to buy nano anywhere with cash, generates extra profit for business owners and doesn’t require the business owner to perform any KYC. Personally, I like the idea of this. Unfortunately the business owner would in this case be a small exchange. And exchanges are, in most countries, required to comply with KYC regulations. The legality of such a system would therefore be questionable in most cases.

Closing thoughts

In the short term, there will probably be some merchants that do want to go through the effort of KYC processes to accept nano and other digital currencies, while some others will accept nano and hold it as an investment. Some might already have trading accounts set up, having already gone through the KYC process and therefore not needing to go through this effort to start accepting nano and off-ramping. I think we will see more and more businesses start accepting nano as faith in digital money is growing and faith in fiat currencies is steadily declining. Over time, as nano becomes more popular and adoption increases, solutions will appear that will make it easier for business owners to off-ramp nano to fiat. I’m planning to put my effort into creating a small micro-economy with nano in my area. Even though this is a difficult task and many merchants might decline, I see it as the eventual goal to have people transact in nano without feeling the need to convert back to fiat currencies. It’s difficult to set up, but would be the path that leads to the least friction. And that is what we aim for with nano. Frictionless payments, anywhere.

For more information about the future of payments with nano, visit https://nano.org/