Cryptocurrencies are yet to become a viable alternative to fiat currency, but over the last decade, they have emerged as a force to reckon with. Cryptocurrencies are decentralized anonymous systems of currency, which are gradually being adopted as a medium of exchange for goods and services in various sectors. Retail is one among them where cryptocurrencies are being largely used, especially Bitcoin for being the most popular among cryptocurrencies. Overstock, which is an important e-store for electronics were the first retailers to have accepted Bitcoin as a payment method. Newegg, another major electronics and computer retailer, soon followed suit as Bitcoin became an accepted payment method in 2014. Multinational giants like Amazon, Microsoft, Expedia, and others have also accepted cryptocurrencies.
Cryptocurrency Use in Retail
Interest in Bitcoin and other cryptocurrencies among retailers had already started growing and reached its peak in December 2017 when the Bitcoin price had touched an all-time high of US$20000. Many retail investors made their foray into this space of digital asset investment and a google search was their gateway into the domain. However, after the Initial Coin Offering (ICO) bubble deflated in 2018, interest in cryptocurrencies fell drastically as these assets fell by almost ‘85% off their peak.’ Search patterns on Google trends have depicted this declining interest, although this does not imply that cryptocurrencies have lost their importance for this sector.
Limitations of Retail and How Cryptos can Help
The retail sector can, on the contrary, benefit from a few advantages that cryptocurrencies have to offer; for instance, cryptos can help in dealing with fraud. Often the payment information associated with consumers is vulnerable to theft like in 2017; identity fraud alone caused a loss of $16.8 billion and affected 16.7 million.
According to Javelin Strategy and Research,
“banks lose billions of dollars every year to these fraudulent transactions, and merchants carry almost the entire chargeback liability.”
Cryptocurrencies are also not completely immune to fraud, but a blockchain-based security system can help in reduction in identity theft by protecting retail merchants. When both merchants and consumers would conduct transactions through blockchain with digital ledgers, it will ensure the credibility and protection of the data. Transactions become more transparent and trustworthy for both parties.
Cryptocurrencies can also help in reducing transaction fees as every step in the retail value chain involves a payment to validate the exchange of data and money. This is because retailers have to pay the price to third parties for services, but blockchain-based transaction systems eliminate the need for this service. Cryptocurrency can establish a system in which merchants will not have to pay an excess processing fee nor bear liability for fraudulent transactions. When blockchain is used for crypto transactions, the payments are recorded publicly on the blockchain itself and private keys are required to begin transactions. A private key is kept solely with the crypto wallet creator and when the user makes any payment and the retailer accepts it, the record is stored on the blockchain permanently. Retailers can, therefore, accept cryptocurrencies for secure and low-cost transactions.
Present Status of Crypto Use in Retail
It has been observed that retailers who generally cater to the youth or have a younger customer base have been more open to the adoption of cryptocurrencies as their customers are also more likely to make crypto-based purchases. KFC Canada, for example, has launched the “Bitcoin Bucket” in January 2018, a meal that can be bought with Bitcoin. This does not imply that older customers would not use bitcoins, but the pattern would gradually emerge. Some of the advantages that retailers should keep in mind to adopt cryptocurrencies as a payment method are non-reversibility of transactions, which means no charge-backs can occur once a transaction is made. There are no fixed ceilings on the transaction value, so no limit on transaction size; Consumers also perceive this as a secure option due to the security of access guaranteed to individual customer wallets. Bank based-credit card systems are particularly prone to fraud especially from foreign buyers involved in high-value purchases. Cryptocurrencies reduce such risks drastically and, with a low exchange fee, have been on demand by many consumers, which has prompted more retailers to accept them.
Cryptocurrencies are, however, preferred as a payment method for certain high-value goods like jewelry and electronic items as customers of these products prefer to stay outside the centralized banking system. Web-based retailers or retailers having both offline and online sales channels are mostly preferred for crypto-based transactions as customers cannot load their wallets with cryptocurrencies and visit an offline store. Retailers who deal with foreign currency from foreign buyers often have to undertake risks of currency devaluation, but if retailers use cryptocurrency, they can try to maintain the balance in the hope that the value of cryptos would rise in future. Therefore the risk involved can be partially compensated.
Challenges in Their Use
However, there are certain obstacles in the large scale adoption of cryptocurrencies by retailers, the first among them being the lack of any systemic safeguards available for traditional payment methods. In case of any loss or theft, there are no government regulations or safeguards. Since a large amount of digital money is stored on a virtual network, in case the network is hacked, the entire money can be lost. Due to anonymity in transactions, it is impossible to trace how the fraud was made. Moreover, in the case of crypto wallets, if the private key of the Wallet holder is stolen or lost, then anyone with it can access the account. Threats like hacking, phishing attacks, social engineering, insider fraud always remain like a Tokyo-based cryptocurrency exchange was hacked last year. ‘Cryptojacking’ is another threat where ‘hackers use another person’s computer to mine crypto coins, which are then delivered to the hackers’ account with no cost to them. With the internet being available on a wide range of devices, hackers now have more options to target.
But problems are born to be resolved; hence retailers can also address these challenges like with the use of multiple signatures by crypto exchanges for currency movement that makes theft difficult. Exchanges are few and thus, cryptos are difficult to liquidate, which causes slow processing, therefore if commercial banks establish these exchanges, it will enhance their trustworthiness and make their management easy. Retailers can also manage their own wallet or become a member of a digital wallet service which would give them a crypto receiving address. Retailers can share their QR codes to let customers know that cryptos are accepted. With more retailers in the market accepting or promoting cryptocurrencies, banks would be encouraged to work with cryptos.
The Way Forward
Thus like any other system, cryptocurrencies also have their own flaws and follies but would also bring in many benefits with their increased use and adoption. Retail is one of those sectors which has immense potential for cryptocurrencies, and their increased acceptance would attract mutual benefits. Cryptocurrencies need better framework and regulation just as their wider use needs greater accommodation by retailers who need to take positive steps to lure the strengthening base of crypto users. With necessary measures from both ends, we would not be far from a crypto revolution in retail.