Crypto For Your Coffee? What’s Next?
For all intents and purposes, Timothy James Jones III, or “T.J.” appears to be an ordinary 41-year old sales manager at a regional logistics company just outside of Boston, Massachusetts.
But T.J. also has a secret, one that he’s embarrassed to admit, though he really shouldn’t be.
As a typical forty-something, white male, living on the eastern seaboard, T.J.’s embarrassed to admit that he knits.
“It may undermine my masculinity. But it helps my mind to focus. I took it up just for kicks and found myself hooked.”
And T.J. would never admit that he knits either to his buddies down at the local bar, or to his fellow Red Sox fans.
Yet unbeknownst to T.J., he’s one of a growing number of middle-aged men who have uncovered the joys of knitting — a far healthier hobby than perhaps binge drinking or gambling.
Across the United States, men are slowly coming out to form knitting groups on online forums, gradually spilling over into the real world at tentative knitting “meet-ups” where they swap knitting patterns and ideas.
“It’s not something I want to broadcast, but I joined a men’s-only knitting club recently and loved it. It’s a way for men to come together and talk about something other than sports.”
But his knitting hobby (which his wife knows about and highly approves of) has not stymied T.J.’s overt manliness in any way. A Red Sox fan, T.J. still enjoys drinks at his local bar, going to Red Sox games and hating on the Yankees.
You just won’t catch him sharing with you his latest knitting patterns on a first meeting.
Everybody’s Doing What Nobody’s Talking About
Much like cryptocurrencies, more and more companies across the United States and globally are starting to make their first tentative and furtive forays into accepting what famed investor Warren Buffett has famously likened to “rat poison.”
From Caribou Coffee to Crate & Barrel, companies across the U.S. are starting to accept cryptocurrencies, but you won’t catch them putting up “Bitcoin Accepted Here” decals in their store windows anytime soon.
At a recent and highly publicized outing in New York recently, the Winklevoss twins (of Facebook fame) strolled into a Starbucks on the corner of Park Avenue South and 23rd Street and using the beta version of a new app called Spedn, waved a QR code in front of the Honeywell scanner at the checkout counter, paying for a small cold brew coffee (with a touch of cream) using Gemini Dollar (GUSD), a cryptocurrency backed by real George Washingtons stored in a State Street account and built atop the Ethereum blockchain.
In the cryptocurrency world, that small act on a scorching May afternoon in New York City would count as nothing short of historic. Historians may one day look back upon that day as the inflection point for cryptocurrency adoption.
But before you sell the house and bet on cryptocurrency, it’s important to consider the circumstances behind this next level of “adoption.”
For starters, none of the companies which have started to sip from the cryptocurrency tap have independently or officially confirmed that they’ve boarded the crypto gravy train.
Whether for fear of alienating the banks and payment gateways that they have a cozy relationship with or for public perception (paying for Starbucks be like paying for Speed — you can use Bitcoin) it’s hard to say.
Across America, some of the biggest names in retail are accepting Bitcoin, Litecoin, Bitcoin Cash (not the crazy one), ZCash and the Gemini Dollar (of Winklevoss fame).
According to receipts and emails provided to Forbes magazine from a few of the hundreds of beta app testers for the payment app Spedn, retailers like GameStop, Bed Bath & Beyond, Whole Foods, Barnes & Noble, Office Depot and Nordstrom were just some of the names where cryptocurrencies would get a customer more than just directions to the nearest exit.
And according to Flexa, the payments startup that builds Spedn, the list of cryptocurrency-friendly companies extends as well to Baskin Robbins (because 39 flavors why not 39 choices of cryptocurrency payments?), Caribou Coffee, Express, Jamba Juice, Lowe’s, OfficeMax, Petco, Regal Cinemas and Ultra Beauty.
That’s not including Starbucks itself.
According to Flexa, almost 100 stores are expected to start accepting Bitcoin and other cryptocurrencies on the Spedn app by the end of this year.
And while the Winklevoss twins were able to purchase a cold brew at Starbucks, Starbucks told Forbes that they are not working with either Gemini or Flexa.
Starbucks itself is a founding partner in a competing cryptocurrency exchange, Bakkt, together with the New York Stock Exchange and Microsoft that issues its own version of a cryptocurrency backed by the dollar — a direct competitor to the Gemini Dollar.
To be sure, we’ve seen this before. Companies, fearful of missing the boat on cryptocurrencies start plunging in, with little knowledge of the complexities involved.
In the early days of cryptocurrencies, several high profile companies, including CheapAir, Microsoft, Overstock.com, Reddit and Expedia announced that they would start accepting cryptocurrency.
But as the price of Bitcoin tanked from US$19,000 to US$5,000, these same companies stopped accepting cryptocurrency, citing lack of interest due to price volatility.
This Time is Different?
One big difference between the first generation of companies accepting cryptocurrency and the companies more open to accepting them today is the relatively recent invention of stablecoins like the Gemini Dollar and the USD Coin.
These are cryptocurrencies which are backed by actual dollars and although based on the blockchain, are ideologically dissimilar to Bitcoin and other cryptocurrencies as they give users the benefit of the blockchain and cryptocurrencies, without the risk of fluctuating prices and volatility.
But other cryptocurrencies which are not stablecoins continue to be volatile and it may be some time before retailers start accepting Litecoin for your latte in any meaningful sense.
Also, the reliance on the dollar as the base for stablecoins goes against the very raison d’être for Bitcoin to begin with — which was a response to the failures of the dollar-based financial system.
Stable is as Stable Does
Regardless, the recent developments can be considered a step forward for cryptocurrency adoption.
At the very minimum, stablecoins can be considered the gateway drug to the ever-expanding universe of cryptocurrencies. But viewed another way, stablecoins also have the potential to undermine the rationale for other cryptocurrencies as well.
If stablecoins start to grow more popular and their use becomes more widespread, then customers, as well as merchants, attracted by the relatively frictionless and low transaction fees of stablecoins, may undermine the value proposition of other cryptocurrencies.
From the perspective of both customer and merchant, there is little incentive to experiment with unproven cryptocurrencies when a readily and widely accepted stablecoin already exists that has fast processing times, can handle a large volume of transactions as well as has low transaction fees — all the benefits of the blockchain, none of the baggage of cryptocurrencies.
But stablecoins like Gemini Dollar, which is an ERC20 token and built atop the Ethereum blockchain also have the potential to boost the value of Ethereum, because it uses the Ethereum blockchain to run processes and thereby incur transaction fees or GAS — but even such a view is speculative at best.
At the very least, payment apps like Spedn or its competitors BitPay, Coinbase or Circle Pay are pushing forward the value proposition of cryptocurrencies.
Because cryptocurrency transactions are immutable and irreversible, it makes it possible for payment companies to charge far less for transactions.
According to consulting firm Javelin Strategy, chargebacks (when a credit card company has to reverse charges made on a card) cost merchants US$31 billion in 2017 alone.
With average interchange fees in 2017 ranging from anywhere between US$0.22 to US$0.52 per transaction, depending on the transaction value and the percent fee, Flexa’s fees on its Spedn app of about US$0.04 to process payments of any size, means that there are substantial savings for merchants and sufficient profit margins for payment service providers.
To give an idea of what’s at stake, according to a Nilson report, US$5.93 trillion in credit card payments in the United States in 2017 reaped a bounty of US$88,39 billion in fees for credit card companies.
Yet there is no guarantee that greater interest in stablecoins by retailers will whet their appetite to accept other cryptocurrencies as well.
Judging by the recent bump up in cryptocurrency prices, there are at least some investors who believe that the long term prospects for the acceptance of cryptocurrencies are good.
There are other developments in cryptocurrencies such as sharding and off-chain, on-chain transactions which are aimed at improving transaction volumes and sizes for cryptocurrencies as well.
Whether or not these developments will lead to the day when cryptocurrencies can be used as readily as cash remains to be seen.
For now, at least, there are more than a few investors who are betting on a number other than zero for cryptocurrencies.