Challenges and opportunities in cryptocurrency payments
The rapid growth of the cryptocurrency market capitalization was one of the factors leading to an explosion of new cryptocurrency wallet users. The number of cryptocurrency wallets has almost doubled in the last 12 months going from just over 12 million wallets to around 23,5 million in March 2018 (source: https://blockchain.info/charts/my-wallet-n-users).
However, we are yet to see widespread adoption of cryptocurrency payments in traditional economic activities such as e-commerce, financial services, and general trade. Cryptocurrencies and their respective cryptocurrency wallets, as well as exchanges, have already proven to be widely adopted tools for trading and contributing to initial coin offerings. This has not been the case for payments despite the blurring line between wallets and exchanges — more than half of the wallets surveyed in 2017 already offered some currency exchange features (source: Cambridge University Global Cryptocurrency Benchmarking Study 2017). There are multiple challenges to be solved to ensure healthy cryptocurrency payment adoption by the general population across the globe.
User experience
The initial user experience of exchanging cryptocurrencies and using them for payments has been awful, like the ability to ‘access’ the Bitcoin, Ethereum and other blockchains were limited only to the very technologically-advanced. With cryptocurrency popularity, new solutions and third-party service providers appeared: MyEtherWallet, Metamask, various wallets and exchanges. These have eased the user experience from ‘awful and only for geeks’ to ‘difficult but understandable for the advanced user.’
Typically, the management of private keys, complicated log-ins, the need to input complicated public wallet addresses, as well as the requirement to set and adjust gas prices for cryptocurrencies such as Ethereum, all add to the frustration of the user experience when using cryptocurrency for payments. This has led to a boom in new wallet and exchange applications and services providers. However, three key challenges in user experience are still widespread:
1. There is still a high-risk of lost cryptocurrency funds if the private key is misplaced or forgotten. It is estimated that around ¾ of wallets do not control private keys, meaning that if the private key is lost, the wallet may become inaccessible.
2. Despite the boom in cryptocurrency payment and wallet applications, the user experience in most of them is still worse when compared to challenger-bank applications, such as Revolut for example (Revolut has only very limited cryptocurrency functionality, and it is not its product focus).
3. There is a lack of merchant adoption of convenient and user-friendly options to use cryptocurrencies. This is partly due to the other challenges mentioned below. Nevertheless, it is a problem that must be addressed to accelerate wider cryptocurrency payment adoption.
The Safein team is addressing all of these challenges by:
- Providing multi-factor authentication options as well as multiple security levels for users. The Safein application will have built-in security recommendations depending on the value of cryptocurrencies held in the wallet and will ensure a balanced mix of user-friendliness and security. That is one of the reasons why Safein has three highly experienced cybersecurity advisors (Joseph Steinberg, Pierre Roberge, and Dr. Vilius Benetis) as well as FinTech advisors (Mushegh Tovmasyan), experienced in areas ranging from payments to advising governments on their national electronic identity programs.
- Focusing on the ultimate user experience by working with specialized financial technology and application UX / UI experts. Be on the look-out for more announcements as Safein continuously develops and evolves its MVP.
- Creating a product with an easy-to-use integration programming interface so that the Safein solution can be integrated into merchants’ e-commerce, financial services, and cryptocurrency websites.
Solving these challenges is not a one-day task. Therefore, the most significant part of our planned 1st year budget for Safein is dedicated to Product Development & IT infrastructure.
Security and trust
The demand for a better user experience has led to an explosion of third-party wallets and applications. Despite that, the cryptocurrency wallet and payment infrastructure can still be considered to be in its infancy. Security breaches are becoming an increasingly more difficult challenge to solve. As the cryptocurrency market capitalization grows, it means that a successful hack or phishing attack may yield a higher reward for the hackers.
Recently, it has become evident that third-party infrastructure and apps are the most susceptible to cybersecurity risks and hacks. Most of the hacks or phishing attacks are related to exchanges or other third-party service providers, as well as ICOs. This has been the case both historically with large hacks of Mt. Gox (2014, an estimated loss of $480M), as well as recently with the Parity Wallet (2017, an estimated loss of $155M) or Coincheck (2018, an estimated loss of $500M).
These risks are the reason why Safein focuses on cybersecurity by working with top experts and companies in the field from day one. Furthermore, as Safein is managing private user data, there is a natural synergy to deploy cybersecurity principles employed by various national governmental institutions which have been consulted by Safein’s cybersecurity advisors. Ensuring security for both private user data as well as their cryptocurrency holdings becomes more economically viable, as there is no need to do it for two separate parties, doubling their cybersecurity costs.
Volatility in cryptocurrency prices
The widespread adoption of cryptocurrency payments is also slowed-down by the volatility of cryptocurrency prices. Furthermore, there is a lack of price uniformity as prices of cryptocurrencies can vary considerably between different exchange platforms. These price differences make price charting more difficult and add to the general degree of cryptocurrency volatility as most cryptocurrencies are currently used as trading and investment vehicles rather than for payments. In addition to this, price volatility is further exacerbated by large cryptocurrency investors executing pump and dump schemes, by using their significant capital holdings and influence to manipulate the prices of smaller cryptocurrencies.
In the long run, as the cryptocurrency market develops further and reaches wide-spread adoption, there will be fewer possibilities to manipulate the price. Therefore, in the long run, the price of cryptocurrencies will increasingly become more stable. In the medium term, payments can be stabilized by converting cryptocurrencies to fiat currencies at the time of the transaction to reduce potential exchange risk. If the scale of these operations is large enough, the conversion fees will be minimized and can be maintained at significantly lower rates than current cross-fiat currency transactions.
The Safein team is aware of these challenges and therefore is working to address them from multiple angles:
- To facilitate the adoption of cryptocurrency usage for payments, Safein token holders will be able to get cashback on the payments made with the SFN token. Furthermore, merchants accepting payments with the SFN token will reduce their transactions fees. For more information on the mechanism and incentives, please see the Safein Whitepaper here: https://www.safein.com/summary/EN/_whitepaper_safein_03_15.pdf?version=7.2
- Safein’s token model and token distribution are both oriented towards the long-run. The token distribution model detailed below is constructed in a way to ensure a wider distribution of SFN tokens amongst its community of users and merchants. This distribution is achieved by multiple means, such as constructing the Registration pool, Login Pool and Referral Program, all of which spread the tokens to the broader community.
Transaction costs and speed
One more challenge to the wider cryptocurrency adoption is high transaction costs, slow transaction speeds and delays. This is very evident during peak trading moments, such as in December 2017, where a $25 transaction of sending bitcoin from one exchange to another required $16 in transaction fees.
Bitcoin, which is considered to be based on a ‘blockchain 1.0’ protocol, is not the only cryptocurrency to experience this issue. The Ethereum network also saw itself unable to operate when it was struck by the CryptoKittens phenomenon in late November 2017. Due to the popularity of these virtual cats, the application was using as much as 21% of the total Ethereum network a week after its release. The number of transactions increased over 1400%, while the transaction costs jumped a worrisome 5072% from the end of 2016 to the end of 2017 (source: EY Research: Initial Coin Offerings).
Despite these challenges, the Safein team believes that scalability issues will be solved by the wider adoption of ‘blockchain 3.0’ protocols, which will have various advanced features, such as sharding, off-ledger transactions, sub-chains and other advancements. When it comes to the Ethereum network and ERC20 tokens, protocol and consensus mechanism innovations such as the Raiden Network, Plasma and Sharding will eventually be adopted to ensure the overall stability and scalability of the blockchain.
A combination of these solutions, as well as other blockchain developments which will benefit the whole community, have a very high probability of being implemented, as their adoption will be in the best interest of the majority of cryptocurrency holders. Therefore, the Safein team believes in a bright future for blockchain technology and that the talented people of the cryptocurrency community will be able to solve all current and upcoming challenges.
Opportunities
A new Web 3.0 of applications and possibilities is currently being built on blockchain technologies, which are continually improving and becoming more sophisticated. It is more than rational to embrace the changes and expect further advancements. Wide-spread adoption of cryptocurrencies can lead to significant improvements in how we currently make payments, especially international transactions:
- Cryptocurrency transactions can cut out various middlemen, each taking a cut of the transaction, such as merchant service fee-chargers, payment gateways, card processors, card schemes and card issuing banks.
- Crypto-payments in the future will allow for nearly instant borderless payments with no exchange fees required.
- The decentralized nature of the cryptocurrencies with wide-spread adoption will render no single institution or authority big enough or capable of manipulating or deciding on the fate or price of the cryptocurrency.
All of these possibilities are in line with the Safein team’s plan to enable a better and safer user experience, as well as cheaper transactions, especially with SFN tokens. The future will be as bright as we can make it. We invite our community to be a part of this bright future: see the Safein whitepaper, join our Telegram channel and social media platform pages and make sure to try out our MVP.
Join us on the mission to enable single-click sign-ups, sign-ins and payments.
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