Cryptocurrency has been a tool used to invest in stocks, but it's also now being considered as a form of payment on popular sites like Amazon. There are many reasons why you should be considering this new technology: security advantages, low transaction fees and better customer service. Read on to learn more.
The first cryptocurrency was created in 2009, and it continues to change the way many people think about money. 2020 was a good year for cryptocurrencies, largely thanks to the COVID-19 pandemic, which greatly accelerated the need for digital currency. It's expected that the global blockchain market will reach $23.3 billion by 2023.
Many people are familiar with cryptocurrency as a tool for investing but don't realise its potential for real-world payments. This article will explore how we can use cryptocurrency for online transactions and some of the benefits of doing so.
WHAT IS CRYPTOCURRENCY?
A cryptocurrency is a digital payment system that doesn't rely on a third-party system to verify its transactions. Instead, it's a peer-to-peer (P2P) system that makes it easy to send and receive online payments.
A cryptocurrency is a decentralised form of currency, which means the government doesn't maintain its value. Unlike cash, these digital tokens have no intrinsic value; they're worth whatever the market is willing to pay for them.
When you send cryptocurrency payments to another person, the transaction is recorded in an online database. These transactions are verified and recorded using a technology called blockchain. Users store cryptocurrency payments in a digital wallet.
Thousands of cryptocurrencies have emerged since the first Bitcoin block was mined in 2009. Here are some of the most popular styles of cryptocurrencies available as of 2021:
Bitcoin: The most popular cryptocurrency in the world, mostly because the price continues to remain high, even as it fluctuates. Major companies like Microsoft are beginning to accept Bitcoin as a form of payment, and Tesla announced early this year it would start doing the same.
Ethereum: Similar to Bitcoin, Ethereum uses a currency called Ether, which is also managed on an open network. Ethereum uses smart contracts, which ensure that users get paid only after certain conditions are met.
Ripple: Cryptocurrencies are know for providing fast transactions, but Ripple takes this to a different level. Ripple processes payment transaction in as little as four seconds, and it can handle up to1,500 transactions per second.
Litecoin: Similar again to Bitcoin in that it has a blockchain public ledger. But Litecoin is more widely available than Bitcoin, and it processes transactions much faster
Cryptocurrencies are still not widely used for payments, though this is changing as they gain mainstream acceptance. To buy cryptocurrencies, you'll need a wallet, which is an online app where you'll hold the currency. You can use either a cryptocurrency trading exchange or on online broker that offers cryptocurrencies.
Most investors purchase standalone cryptocurrencies as a portion of their investment portfolio. How much you invest will depend on your overall risk tolerance.
How using cryptocurrency online works
You'll need a cryptocurrency wallet to get started, which operates a bit differently to a standard digital wallet. A cryptocurrency wallet stores your public and private keys and keeps records of your transactions.
If another user sends you any type of digital currency, your private key must match the public address of that currency before you're able to accept it. So there's never any actual exchange of funds - it's just a transaction record on the blockchain.
That being said, you can spend cryptocurrency wherever card networks like Visa and Mastercard are accepted. You can use it to make payments at retail stores, order dinner, or even pay utility bills.
There's a catch though - with Bitcoin being the most popular cryptocurrency, it also offers more payment options. If you're using other cryptocurrencies, it might be a few years before you can easily use them to make payments online.
Cryptocurrency transactions are much faster than transactions involving fiat money. And once a cryptocurrency transaction is completed, there is no possibility of chargebacks.
Fiat currency is a currency that a government backs and controls the supply. Whereas cryptocurrency is decentralised, which means a government doesn't back it. When you pay with fiat currency, you need an intermediary to facilitate the transaction, like a bank or payment processor. However, cryptocurrency transactions only involve two parties and effectively cut out the middleman.
Benefits of paying with cryptocurrency
Here are some of the benefits of paying with cryptocurrency:
International use: When you pay with cryptocurrency, international transactions are treated the same as domestic transactions. Unlike fiat currency, there are very few fees involved, and you can trade cryptocurrency from anywhere in the world.
Fewer fees: Debit and credit card transactions are convenient, but the fees can be exorbitant for businesses. When you pay with cryptocurrency, there is no need for a third-party payment processor to authenticate the transaction. This effectively eliminates the need for most transaction fees.
No chargebacks: Chargebacks one of the most frustrating things that many business owners have to deal with. Customers will make a purchase and then cancel the payment, and there is little you can do about it. But with cryptocurrency, once a payment is recorded to the blockchain, it cannot be changed.
More accessible: Because cryptocurrency is available to anyone with access to a smartphone, it's more accessible than traditional banking systems. This could allow easier payment transactions for millions of people who don't have access to a bank account or credit card.
How will cryptocurrency affect fraud prevention?
Being that cryptocurrency transactions take place using blockchain technology, transactions are recorded into blocks and time-stamped. These transactions are then recorded into a secure digital ledger of online transactions, and two-factor authentication is required for every cryptocurrency transaction; which provides additional security.
Fraud is possible with cryptocurrency transactions, but blockchain technology could help reduce the rate of internal and external fraud. That's because data isn't held within one central location that hackers can target. Blockchain can also help prevent the rate of double-spending.
The technology behind cryptocurrency holds the potential for many practical applications, and it will likely contribute to a continued move away from cash payments. The adoption is becoming increasingly widespread, and the user index shows a 97% confidence in cryptocurrencies.
Bitcoin is still a leading currency, with around 400,000 transactions in January 2021. But other cryptocurrencies like Ethereum continue to gain in popularity. Overall, there are roughly 900 new coins on the market every day in 2021. Research also shows that new cryptocurrency users are added to the market daily. In the coming years, crytocurrency adoption will increase for both investing and retail.
While crypto payments are far from becoming the norm, the world of payments is rapidly changing. As a business, you need a partner that can help you access payments safely and securely. Bambora can help you identify ways to offer safe and secure payments to your customers.