Сryptocurrency and E-commerce: The Emerging Trend

In the digital age, the way we conduct transactions is rapidly evolving. One of the most significant developments is the integration of cryptocurrency in e-commerce, which is now way closer than one might think. This emerging trend is revolutionizing online transactions, offering benefits such as increased security, reduced transaction costs, and global accessibility. Today, we will dive deeper into the topic of crypto in ecommerce, explore its use and how their intersection can bring benefits and of course challenges to businesses and customers. We will also provide a brief overview of what the future for this industry looks like, as well as talk about a number of examples that are already implementing the new technology successfully. 

What is Cryptocurrency?

Cryptocurrency, a digital or virtual form of money, uses cryptography for security. Cryptography, in turn, is the practice of encoding and decoding information using mathematical techniques. This ensures that only authorized parties can access and modify the data, making it resistant to fraud and tampering. Cryptocurrency operates independently of a central authority, such as a government or a bank, and can be transferred between individuals or businesses without the need for a third party, such as a payment processor or a clearing house. Since the creation of Bitcoin in 2009, the world of cryptocurrency has expanded, with thousands of different types now available. Some of the most popular crypto currencies include Ethereum, Litecoin, Ripple, and Dogecoin. Each project and coin has its own unique features, such as the algorithm used to generate new coins, the supply limit, the transaction speed, and the level of anonymity.

What is E-commerce?

E-commerce, or electronic commerce, refers to the buying and selling of goods or services using the internet. Over the past few decades, e-commerce has become a critical component of the global retail framework, as more consumers and businesses prefer the convenience, variety, and affordability of online shopping. According to Statista, the global e-commerce market was valued at $4.28 trillion in 2020, and is expected to grow to $6.38 trillion by 2024. Some of the leading e-commerce platforms that one might’ve heard of include Amazon, Alibaba, eBay, Shopify, and Walmart. 

E-commerce encompasses various types of transactions, such as business-to-consumer (B2C), business-to-business (B2B), consumer-to-consumer (C2C), and consumer-to-business (C2B).

The Intersection of Cryptocurrency and E-commerce

Cryptocurrency and e-commerce, two different concepts at first glance, are now starting to interact. More and more e-commerce platforms are beginning to accept cryptocurrencies like Bitcoin as a form of payment, signaling a significant shift in how online transactions can be conducted. For example, in 2021, PayPal announced that it would allow its US customers to buy, sell, and hold cryptocurrencies, as well as use them to shop at millions of its online merchants. Similarly, Shopify, a leading e-commerce platform for small and medium-sized businesses, partnered with several cryptocurrency payment providers, such as BitPay and CoinPayments, to enable its merchants to accept over 300 different cryptocurrencies. 

Moreover, some e-commerce platforms have created their own cryptocurrencies, such as Rakuten Coin by Rakuten, a Japanese e-commerce giant, and Libra by Facebook, a social media behemoth. These platforms aim to use their cryptocurrencies to reward their loyal customers, facilitate cross-border transactions, and create a more integrated and seamless online experience. Other platforms decided to integrate crypto ecommerce in a different way - they are now accepting digital payments or other means of engaging with crypto.

Benefits of Using Cryptocurrency in E-commerce

The use of cryptocurrency in e-commerce offers several benefits for both consumers and businesses. Some of the main ones are:

• Faster and more secure transactions: Cryptocurrency transactions are processed through a decentralized network of computers, called a blockchain, that validates and records each transaction in a transparent and immutable way. This eliminates the need for intermediaries, such as banks or payment processors, that can slow down the transaction process, charge high fees, and expose the data to hacking or fraud. Cryptocurrency transactions can be completed in minutes or seconds, compared to hours or days for traditional payment methods. Moreover, cryptocurrency transactions are encrypted and anonymous, meaning that the identity and personal information of the parties involved are protected and not revealed to anyone.
• Lower transaction costs: Cryptocurrency transactions incur minimal or no fees, as there is no middleman involved. This can save both consumers and businesses a lot of money, especially for cross-border transactions, which usually involve high currency conversion and transfer fees. For example, according to BitPay, a cryptocurrency payment service provider, its merchants pay only 1% per transaction, compared to 2-6% for credit card transactions.
• Global accessibility: Cryptocurrency transactions can be conducted anywhere and anytime, as long as there is an internet connection and a digital wallet, which is a software or hardware device that stores the cryptocurrency. This means that consumers can access a wider range of products and services from around the world, and businesses can reach new markets and customers without geographical or time constraints. Moreover, cryptocurrency transactions can benefit the unbanked or underbanked population, which is estimated to be around 1.7 billion people worldwide, who do not have access to traditional financial services, such as bank accounts or credit cards. Cryptocurrency transactions can provide them with an alternative and inclusive way to participate in the online economy.

Challenges and Limitations

Despite the potential benefits, there are also challenges and limitations associated with using cryptocurrency in e-commerce. Some of the main ones include:

• Volatility of cryptocurrencies: Cryptocurrencies are known for their high price volatility, meaning that their value can fluctuate significantly in a short period of time, due to factors such as supply and demand, market sentiment, regulatory developments, and technological innovations. This can pose risks for both consumers and businesses, as they may lose money or face uncertainty when using cryptocurrencies for online transactions. For example, in 2021, Bitcoin reached an all-time high of over $64,000 in April, but then dropped to below $30,000 in June, a decline of more than 50%. Such volatility can deter consumers and businesses from adopting cryptocurrencies as a reliable and stable form of payment.
• Regulatory and legal issues: Cryptocurrencies are subject to different and often unclear regulations and laws in different countries and jurisdictions. Some countries, such as China, India, and Russia, have banned or restricted the use of cryptocurrencies, while others, such as the US, the UK, and Japan, have adopted a more favorable or neutral stance. However, even within the same country, there may be conflicting or inconsistent rules and regulations regarding the taxation, reporting, and licensing of cryptocurrency transactions. This can create confusion and uncertainty for both consumers and businesses, as they may face legal consequences or penalties for using cryptocurrencies in e-commerce.
• Technological challenges: Cryptocurrency transactions require a certain level of technological knowledge and infrastructure, which may not be available or accessible to everyone. Consumers and businesses need to have a digital wallet, a cryptocurrency exchange account, and a reliable internet connection to use cryptocurrencies in e-commerce. Moreover, they need to be aware of the security risks and best practices associated with storing and managing their cryptocurrencies, such as using strong passwords, encryption, and backups, and avoiding phishing, malware, and hacking attacks. Furthermore, they need to be familiar with the technical aspects and terminology of cryptocurrency transactions, such as blockchain, mining, hashing, and consensus, which may be confusing or intimidating for some.

What E-commerce Platforms Allow Crypto?

Several businesses have successfully integrated cryptocurrency into their e-commerce operations. These real-life examples provide valuable insights into the practicalities and benefits of using cryptocurrency in e-commerce.

Overstock

Overstock is one of the first and largest online retailers to accept cryptocurrency as a form of payment. Since 2014, Overstock has partnered with Coinbase, a cryptocurrency exchange platform, to enable its customers to pay with Bitcoin and other cryptocurrencies, such as Ethereum, Litecoin, and Dash. Overstock also offers discounts and incentives for customers who use cryptocurrency, such as free shipping and rewards points. Moreover, Overstock has invested in several cryptocurrency and blockchain-related ventures, such as Medici Ventures, a blockchain incubator, and tZERO, a blockchain-based trading platform.

Newegg

Newegg is a leading online retailer of computer hardware and electronics. Since 2014, Newegg has accepted Bitcoin as a form of payment, in partnership with BitPay, a cryptocurrency payment service provider. Newegg also offers discounts and promotions for customers who use Bitcoin, such as $150 off select purchases. In addition, Newegg has expanded its cryptocurrency payment option to 73 countries, including Canada, Australia, and the UK, to cater to its global customer base.

Shopify

Shopify is a leading e-commerce platform for small and medium-sized businesses. Since 2013, Shopify has enabled its merchants to accept Bitcoin as a form of payment, in partnership with BitPay, a cryptocurrency payment service provider. In 2020, Shopify also partnered with several other cryptocurrency payment providers, such as CoinPayments, Coinbase Commerce, and Crypto.com, to enable its merchants to accept over 300 different cryptocurrencies. This means that they are likely to have implemented a crypto payment plugin for ecommerce, or developed a new technology internally. Shopify also allows its merchants to create their own cryptocurrencies, using platforms such as Ethereum and ERC-20.

Future Trends and Predictions

As the use of cryptocurrency in e-commerce continues to grow, several trends are emerging. These include:

• Increased use of smart contracts: Smart contracts are self-executing agreements that are encoded on a blockchain. They can facilitate and automate various aspects of e-commerce transactions, such as payment, delivery, and dispute resolution, without the need for intermediaries or trust. For example, a smart contract can automatically release the payment to the seller once the buyer confirms the receipt of the goods, or refund the buyer if the goods are damaged or not delivered.
• Development of more stable cryptocurrencies: Stablecoins are cryptocurrencies that are pegged to a more stable asset, such as a fiat currency, a commodity, or another cryptocurrency. They aim to reduce the volatility and risk of cryptocurrencies, while retaining the benefits of speed, security, and low cost. Stablecoins can be more appealing and convenient for e-commerce transactions, as they can minimize the price fluctuations and exchange rate issues that may affect the value of the transaction. For example, Tether, USD Coin, and Dai are some of the famous examples of alternative currencies.
• Adoption of non-fungible tokens (NFTs): NFTs are unique digital assets that represent ownership of something, such as art, music, collectibles, or even virtual land. They are created and stored on blockchains, and can be bought and sold using cryptocurrencies. NFTs can offer new opportunities for e-commerce, such as creating digital scarcity, enhancing customer loyalty, and enabling new forms of creative expression. For example, some e-commerce platforms are already experimenting with NFTs, such as Shopify, which allows its merchants to sell NFTs on their online stores, and eBay, which plans to introduce NFTs as a new category of items.

The integration of cryptocurrency in e-commerce is an exciting development that has the potential to revolutionize online transactions. While challenges remain, the benefits of increased security, reduced transaction costs, and global accessibility make this an area of significant potential growth. As the use of cryptocurrency in e-commerce continues to grow, several trends are emerging, such as the increased use of smart contracts, the development of more stable cryptocurrencies, and the integration of crypto wallets and e-commerce platforms. These trends indicate that cryptocurrency and e-commerce are intersecting in innovative and beneficial ways, creating new opportunities for both businesses and consumers. The future of cryptocurrency and e-commerce is bright, and it is important to keep up with the latest developments and best practices in this dynamic and evolving field.

SimpleSwap reminds you that this article is provided for informational purposes only and does not provide investment advice. All purchases and cryptocurrency investments are your own responsibility.