Bitcoin Payments Remain in Their Infancy but There Are Green Shoots Everywhere

Can cryptocurrencies, stablecoins and CBDCs coexist as methods of payment? Industry leaders shine a light on the future of crypto payments. This piece is part of CoinDesk's Payments Week.

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Updated Sep 19, 2023 at 4:03 p.m. UTC
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The good news, for anyone who was hoping for mass adoption of bitcoin (BTC): There's a viable retail use case for the cryptocurrency.

The perhaps more sobering news: That use case is as a reward for spending dollars, not a currency to be spent itself.

Iconic burger chain Shake Shack (SHAK) ran a promotion last month where customers were able to receive bitcoin as a reward for purchases made using Block’s (SQ) Cash App. “We've found that, on average, users that receive bitcoin boosts spend more per transaction and overall spend more at Shake Shack,” Julia Webb, the company’s director of digital marketing, told CoinDesk.

This article is part of CoinDesk’s Payments Week series.

“While we successfully reached a new, valuable audience with this promotion, our goal moving forward is to understand how to scale this and similar programs to a broader audience and encourage frequency,” she added.

That qualified success speaks to the challenges bitcoin and its various knockoffs and descendants face at the checkout counter. While early evangelists framed bitcoin as a digital currency that would replace fiat, many today hold it either as a gold-like, inflation-resistant store of value or as a speculative investment. Many vow to stay away from it altogether.

Whatever your stance, crypto as a form of payment remains in the early innings, a tantalizing vision that hasn't come to fruition just yet.That said, new advances in the crypto payments niche are occurring daily. Emphasis on niche.

Having said that, developments in the crypto payments space are occurring daily, and they’re relevant for everyone from consumers to central bankers.

Transaction speed and costs, regulation and price volatility are common roadblocks to bitcoin being widely accepted as a payment method. On the other hand, prominent examples shed light on the potential of cryptocurrencies, with the most recent one being the ongoing conflict in Ukraine.

Crypto payments in digital consumer-to-business merchant commerce (including e-commerce) remains relatively small, representing about $6 billion of annual volume, according to a white paper from payments company Nuvei. This figure is minor compared to Nuvei’s estimate of the over $10 trillion market for total B2C ecommerce. About 15%-25% of crypto’s roughly 300 million global users are using crypto for merchant payments, Nuvei added.

In crypto’s early days, many physical retailers announced they were going to accept digital currency, only to shutter their plans. “Physical store acceptance of crypto is more important to monitor, as over 85% of sales in the U.S. occur in stores rather than online,” Morgan Stanley’s (MS) cryptocurrency analyst Sheena Shah told clients in a note, adding that only eight of the top 500 retailers currently accept bitcoin.

Across the U.S., consumer businesses are slowly continuing to test the waters for bitcoin payments. Take that Shake Shack promotion last month where customers received bitcoin as a reward for purchases when using Block’s Cash App. The company wants to do more of these initiatives in future.

“Since we launched the bitcoin rewards program with Cash App, we've found that on average, users that receive Bitcoin Boosts spend more per transaction and overall spend more at Shake Shack,” says Webb. “While we successfully reached a new, valuable audience with this promotion, our goal moving forward is to understand how to scale this and similar programs to a broader audience and encourage frequency.”

Meanwhile, the Lightning Network – a layer 2 protocol designed for scalability and faster payments – has allowed bitcoin payment bulls to argue that broader adoption is coming. Until now, although bitcoin was originally slated as a form of peer-to-peer digital cash, Satoshi Nakamoto’s vision for bitcoin may have paved the way for other cryptos to become more viable payment methods.

Payment green shoots via stablecoins and CBDCs?

Use cases for bitcoin continue to pop up, though many in the industry see stablecoins and central bank digital currencies (CBDC) gaining traction more readily.

“Stablecoins are going to be one of the dominant payment rails for commerce online and offline,” says Alex Tapscott, managing director of the digital asset group at investment firm Ninepoint Partners. Tapscott highlighted how individuals own and control their stablecoins, versus cash in a bank account that is merely a representation of real value.

Unbanked jurisdictions and special situations like the Russia-Ukraine conflict are lending credence to bitcoin’s use case. However, the “bigger picture is that crypto is eating payments,” with bitcoin still part of the conversation, Tapscott added.

Nuvei sees a strong future for non-fungible token (NFT) payments (see below) and stablecoins. “Many of our clients are interested in getting their funds much faster,” Yuval Ziv, Nuvei’s president, said.

“It is easy to see the natural tension between cryptocurrencies, stablecoins, and CBDCs. However, we (and others) anticipate a future where CBDCs co-exist with both cryptocurrencies and stablecoins along with traditional fiat,” Nuvei added in its white paper.

Just last week, payments processor Stripe said it’s letting clients settle payments in Circle’s USDC. Twitter (TWTR) is planning a pilot for content creators on “Ticketed Spaces” and “Super Follows.” to be paid in crypto.

The largest payments companies including Visa (V) and Mastercard (MA) began trials with USDC last year.

More adoption

Delivering on crypto payments technology and usage will continue to hinge on safety for users along with scalability. That’s what motivates Mastercard and what will ultimately let merchants and consumers come onboard.

“We're not here to pick winners” in regards to which cryptocurrency will come out on top as a payment method, Raj Dhamodharan, Mastercard’s global head of crypto and blockchain, told CoinDesk. “We want to make sure that the consumer and merchants have a choice in what they do.”

Enabling crypto-to-fiat and fiat-to-crypto flows is key for billions of global consumers to get involved, without proper trust in the system, adoption will face headwinds, Dhamodharan says.

NFT payments

Many see NFTs as a great intersection for crypto payments and the digital asset economy. Whether it be digital media or gaming, users may prefer digital currencies to transact.

The crypto industry is asking a key question: Will NFTs “become so popular that they help to onboard new people to Bitcoin and ether as a payment tool?” according to Tapscott. “That’s where we’re headed,” he says.

As per gamers, a large demographic in the current NFT ecosystem, NFTs will allow them to “truly own their digital personas and goods, rather than simply having a limited claim from a publisher,” Nuvei said. Cryptos including bitcoin are also increasingly being used by game publishers to reward gamers and aid the exchange of value within gaming ecosystems, the company added.

Perhaps not for crypto maximalists, larger NFT companies such as OpenSea, through MoonPay, opened up their payment rails to traditional credit card holders in the event a customer wants to buy an NFT and have their fiat converted to crypto. Additionally, U.S. crypto exchange Coinbase (COIN) teamed up with Mastercard to enable easier NFT purchases.

Crypto enthusiasts have wallets and contain cryptocurrencies to own NFTs, though for the average consumer, it should be made easier, according to Mastercard. “Expanding the audience for NFTs allows this burgeoning market to support more creators and could spark the next evolution of digital commerce,” Mastercard’s Dhamodharan said in a blog post earlier this year.

Slowly but surely, crypto as a form of payment is increasing globally. Still, it remains to be seen as to what extent mainstream adoption will occur. For crypto natives and skeptics, one thing remains certain in that easiness of transacting and security are central.

As Morgan Stanley’s Shah puts it: “make it easy and they will come.”

More from Payments Week:

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Porn, gambling and even furniture sales are deemed “high-risk” merchant categories. Sometimes the risk is financial; other times it’s just bad publicity.

How and why those original digital payments projects are no longer with us today can give us an idea of what needs to be done to do it right. This piece is part of CoinDesk's Payments Week.


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Michael Bellusci is CoinDesk's crypto reporter focused on public companies and digital asset firms.

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