Why Haven't Crypto Payments Taken Off?

Examining everything from bitcoin's life cycle to the instability of stablecoins.

AccessTimeIconApr 26, 2022 at 1:15 p.m. UTC
Updated Sep 19, 2023 at 4:03 p.m. UTC
AccessTimeIconApr 26, 2022 at 1:15 p.m. UTCUpdated Sep 19, 2023 at 4:03 p.m. UTCLayer 2
AccessTimeIconApr 26, 2022 at 1:15 p.m. UTCUpdated Sep 19, 2023 at 4:03 p.m. UTCLayer 2

Editor's note: As part of CoinDesk’s Payments Week, we asked a number of engineers, executives and experts to weigh in on the substantial issues raised by the crypto industry. In this roundtable discussion, they answer the question of why after 13 years, haven’t cryptocurrency payments taken off?

Crypto payments aren't 'tap to pay' yet

You can buy streetwear from Off-White, AMC movie tickets and a subscription on Substack using crypto. Even more, Cash App users can make bitcoin payments to any merchant on the Lightning Network. Yet crypto payments adoption remains stagnant.

The technology exists for merchants to enable crypto payments, but that doesn’t mean consumers want the option. On the consumer side, exchange-rate volatility, regulation, safety, privacy and education are all causes for concern. Globally, crypto payments would enable commerce for the approximately 2 billion unbanked adults. For a more developed country like the U.S., however, consumer expectations are higher than the experience that crypto infrastructures provide. Using crypto payments means headaches like paying capital gains tax and giving up chargebacks and other protections. And that is if you can figure out how to buy bitcoin, ether or dogecoin.

This piece is part of CoinDesk's Payments Week

Builders can improve adoption by creating incentives for consumers, improving wallet fiat on-ramps and user experience, introducing stablecoins on layer 2 with lower fees and privacy and simplifying education and on-boarding. Crypto payments will move beyond the internet as long as builders make it easier than opening a bank and tap to pay.

–Holyn Kanake, New York-based designer and adviser and CoinDesk columnist

Cryptocurrency is currently too volatile

Two of the biggest payment companies of the last decade, Block (formerly Square) and Stripe, both offered bitcoin payments way back in 2014. Both discontinued those projects shortly thereafter due to a lack of payment volume. Both are trying again with new crypto projects. So what initially blocked crypto from achieving widespread adoption, and does that problem still persist?

In a word: volatility. The wild swings of the most popular coins make for good trading but a poor medium of exchange. Enter stablecoins, assets pegged to a reserve asset that promise to limit volatility and are indeed encouraging. Speed, or lack thereof, is also a factor, but one that will improve with time.

Most frustrating, we are still waiting for a consumer-friendly app that opens up payments the way the browser opened up the internet to the masses. While key roadblocks remain, with price stabilization over time, more regulatory clarity and the inevitable emergence of a "killer" consumer wallet, we will finally see a mainstream decentralized crypto payment vehicle soon. Just don’t ask me when.

–Ryan Conway, senior vice president at Oxygen

No privacy

Transacting in a pseudonymous environment is akin to skating on extremely thin ice. Large corporations, small businesses and individuals all stand to benefit immensely from on-chain payments, but if ever their wallet addresses are exposed, their entire transaction histories are forever made public. Not to mention, it is a certainty that everyone with whom they transact is instantly availed full transparency into their holdings and exchanges, and thus becomes a source of exposure risk.

–Alex Shipp, chief strategy officer at Offshift

Bad user experience (UX) design

People are simply overwhelmed by the poor user experiences (UX) in crypto. It is easy to forget that beyond technical efficiency, great user experiences ultimately make things feel intuitive, safe, predictable and even delightful. Crypto still lags behind TradFi (traditional finance) in that regard. And assuming you get over that, the complexity of multiple chains and high gas fees simply make payments for the majority of transactions prohibitively expensive.

–Tarik Moon, founder and CEO of Alpine DeFi

Cycles of cryptocurrency adoption

Crypto payments have not taken off yet because of where we currently are in bitcoin’s adoption cycle. Historically, an asset that becomes money evolves through four stages: collectible, store of value, medium of exchange and unit of account.

We are still early in the store-of-value phase, when most of the very small number of people who own bitcoin are using it for long-term savings, with the bonus that its value is likely to appreciate significantly over time. As more people adopt bitcoin and store more of their value in the protocol, the price will continue to rise and volatility will decline, making it more suitable for payments.

The desire of more and more people to pay for goods and services with bitcoin will provide the incentive for entrepreneurs and investors to build technology and infrastructure to facilitate bitcoin payments around the world. We are already seeing the earliest signs of this trend today with technology like the Lightning Network, which has experienced rapid growth in the last year.

–Cory Klippsten, founder and CEO of SwanBitcoin.com

Merchants don’t want the risk

There are a variety of Web 3 payment processors that help businesses leverage cryptocurrencies or convert crypto assets to their fiat equivalents more quickly and cheaply than traditional payment networks. However, most merchants aren’t aware that these solutions exist. Those who do often write them off for being too risky, too inaccessible or simply too complicated. Lack of privacy, subpar UX and general user friendliness and high time-to-transaction finality are all factors that have kept crypto payments from taking off. It’s no wonder then that most businesses today are reluctant to accept crypto payments in exchange for their goods or services.

–By Antoni Zolciak, co-founder of Aleph Zero

The problem with “stable”-coins

The problem with crypto payments is stablecoins. The problem with stablecoins lies in their structural design inefficiencies. Whether overcollateralized by other digital assets, fiat-backed by other countries’ native currencies, or algorithmically stabilized, each has distinct weaknesses.

The stablecoin ecosystem has been a hot topic as of late. USDC might soon hit its cap, showing that it can’t alone sustain the growing crypto economy. Algorithmic stablecoins are a response to this scaling shortfall that attempts to achieve scalability through novel price-stabilizing mechanics, a design choice that carries significant risks. Meanwhile, collateral-backed solutions are starving for access to high-quality collateral in order to scale.

In order to fix crypto payments, you have to find a stablecoin with true scaling capability. Finding the right collateral is the key. A politically neutral solution for this is an asset-backed stablecoin, backed by a relatively liquid, stable and highly in-demand asset. We’re betting that home mortgages are the high-quality asset stablecoins need, with $13 trillion sitting in U.S. mortgages alone. Mortgages are one of the oldest and most reliable assets for wealth generation but have been previously only accessible to governments, banks and high-net-worth individuals as an investment vehicle.

–Karl Jacob, co-founder of Baconcoin

More from Payments Week:

Blockchains offer unique advantages, but these must be combined with a user experience that feels similar to the one consumers know today, writes Senior Vice President Jose Fernandez da Ponte.

Financial censorship has gone from an abstract idea to a harsh reality for Russians who suddenly found themselves unbanked by the West and their own government.

Down The Silk Road: Where Crypto Has Always Been Used for Payments

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Daniel Kuhn

Daniel Kuhn is a deputy managing editor for Consensus Magazine. He owns minor amounts of BTC and ETH.