On the way to a universal payment system: barriers and solutions
Can you imagine that just in three months — on January 3, 2019 — we will celebrate the 10th anniversary of the Bitcoin network? Ten years have already passed since block 0 was mined and the cryptocurrency revolution — or transformation — began. Yet, with all the advantages that blockchain promises to offer: security, low or zero fees, privacy, etc, truly universal payment systems based on this technology are still nowhere to be seen. Dozens — if not hundreds — of projects have announced the creation of the ultimate blockchain payment platform, but those that were released are used by a tiny minority. Why is that?
The reasons are many — both inside and outside the cryptocurrency business. On the one hand, cryptocurrency payment systems are going against the current, and it’s a huge current. Banks have been there for centuries — the oldest among those still active today, Monte dei Paschi di Siena, was founded in 1472, and you can find its ATMs all around Italy and even Europe! People are used to banks, they listen to what banks say, and banks generally tell you to beware of cryptocurrencies — that Bitcoin and Co. are just a bubble that will soon burst. In fact, if you speak to ordinary citizens outside of the crypto community, you will hear from most of them that crypto is all about speculation and doesn’t have much of a future. They may be wrong, but it is difficult to create a universal crypto payment system when your target audience is not convinced.
Banks and financial regulators point out something else: security risks. True, blockchain is by design more secure than traditional server architecture and centralized financial organizations — for example, there is no risk of a gang robbing a safe vault full of Bitcoins or of a bank manager stealing funds. Yet, hacker attacks do happen, keys and seed phrases do get stolen, and users do lose their money on occasion. And even if these losses are nothing compared to those sustained by clients of failed banks in many countries — for example, Bank of Cyprus depositors lost over 45% of their savings in 2013 — they are widely advertised and discussed. Of course, crisis in the crypto market and closures of digital exchanges are great for traditional institutions, since they feed the general “crypto is bad, banks are good” legend.
Regulators add to the uncertainty among the population, often speaking out against blockchain and cryptocurrencies. It is understandable: the original blockchain philosophy of decentralization and disintermediation goes against the very idea of state regulation. Of course, it would be naive to believe that the blockchain industry — and crypto payment systems — could stay under the radar forever. With crypto companies like Coinbase reaching market valuations of over 1 billion dollars, the state has to intervene and demand its share. However, regulators in some countries have taken unnecessarily harsh measures against exchanges and other crypto platforms, down to an absolute ban (Egypt, Bolivia, Saudi Arabia, Pakistan, etc.).
Apart from the infrastructural issues described above, let’s not forget the technology-related problems that prevent the emergence and acceptance of properly functioning crypto payment systems. First of all, those solutions that already exist are quite complex and often have a steep learning curve. Interfaces overloaded with features, graphs, exchange rates, etc. scare off a lot of beginners. By contrast, such traditional payment applications and APIs as PayPal, Stripe, or BrainTree already power most of online commerce and are easy to use and implement. So why would a user switch to something that is not widely accepted and difficult to learn?
Second, even if the crypto revolution is on its way, almost all of us still rely on fiat currency — and it will remain so for the near future. Bus tickets, food at a grocery store, medical bills — it will take years for us to be able to pay for such everyday items using crypto. (Even those businesses that already accept Bitcoins or ether actually only use third-party services to convert those BTC into dollars or euro.) This means that any real crypto payment system needs simple and cheap tools to convert digital currency into fiat money. That’s where almost all existing projects fall short: they focus too much on processing payments within the system and forget about the fact that users need to take their money out of the system, too.
Crypto-fiat conversions are currently associated with high fees, especially when you start with a token or altcoin that is not BTC of ETH and want to get dollars or other fiat in your bank account or card as a result. It is not uncommon for overall fees to amount to 10%. Yet payments via PayPal or Stripe cost much less than that, so… why bother?
Crypto payment systems are definitely not strong enough yet to go against banks and regulators, so the infrastructural hurdles are here to stay for now. However, the technological barriers to the emergence of an ultimate decentralized payment system can and should be overcome. A clear, intuitive interface, low fees, reliable security mechanisms — these are the basics for a quality payment system. Once they are in place, wide acceptance will surely follow.