Is cryptocurrency the payment of the future? Or is it another fad that will fizzle out before it really gains traction? Crypto advocates may be frothing at the mouth to promote mass adoption, but without a serious rethinking, crypto is destined to remain a barter tool for only the truest believers. To become a viable alternative to your wallet, cryptocurrencies must offer significant enhancements to the current payment system. That’s no small task, but it’s not impossible.

When it really started to come into the public view about 10 years ago, blockchain seemed to promise an alternative currency, one that offered secure, online transactions with no need for a centralized third party. However, crypto’s reality is a far cry from its promise. Merchant adoption is low, consumer demand is minimal, and security concerns dominate the headlines. The future of payment is looking increasingly like apps and portals. To play a role, cryptocurrencies need to examine where they’re winning, where they’re falling short, and what it will take to go from novelty bartering communities to usable everyday currency.

The good, the bad, and the barriers

While it’s true that crypto — bitcoin in particular — had a terrible 2018, with falling prices dominating the news, the outlook for 2019 is less grim. While crypto won’t wipe out the current fiat system in the next few years, a number of retailers — mostly online — are beginning to accept bitcoin as payment for goods and services. That’s good news if you want to be able to spend your crypto coins.

Even with these developments, the logistics of spending crypto remain complicated. The first hurdle is the IRS, which has classified cryptocurrencies as assets — as opposed to currencies — which makes spending crypto a taxable event. That means you’ll have to figure in a capital gains tax when you’re buying groceries. And while you’re flexing your math muscles, remember to tack on fluctuating transaction fees to the cost of your sandwich. They’re low right now, but bitcoin transaction fees were north of $50 as recently as one year ago.

The real reason cryptocurrencies haven’t figured out payment is that they’re too narrowly focused. It’s partly because the people behind crypto only know what they know, but most crypto projects solve only one or two currency challenges. There’s no one cryptocurrency token that’s putting it all together to earn mass appeal.

What’s holding cryptocurrency back

Any cryptocurrency token you can think of has its own niche and its own fans. What one coin solves, others ignore. Take transaction times as an example. Cryptocurrencies’ transactions are slow because they don’t have networks supporting large-scale use. Bitcoin can process seven transactions per second. Ethereum can handle 15. Ripple, one of the fastest major cryptocurrencies, processes 1,500 transactions per second. But when you compare that to the 24,000 transactions Visa processes per second, you get a sense of the snail’s pace even Ripple moves at.

On the flip side, Nano’s differentiator is its ability to process transactions instantaneously with no real capacity limits per second. But “instant” applies to everything. That means that even if you’re buying a house, the payment will go through instantly. In contrast, Ethereum focuses on smart contracts that enable restrictions on how money is released, including escrow accounts and partial payments. Essentially, Ethereum works if you want to buy a house, but can you imagine navigating that kind of platform just to buy a pack of gum?

So is it possible for a cryptocurrency to solve the challenges and emerge as a viable payment option? The answer is a qualified yes, but don’t rush to trade in your cash. Instead, watch for a crypto coin that is able to expand its focus and overcome a few key barriers.

Crypto worth adding to your wallet

The single biggest puzzle that cryptocurrencies need to solve is how to persuade merchants to take the leap. So far, there’s not much upside for retailers. In fact, crypto adds complications for businesses, including the headache of exchanging crypto for fiat currency in order to pay their employees or bills. Volatility is another major concern, because selling something for $10 and then discovering the exchange rate is $5 is an unacceptable loss for merchants. As a result, today’s cryptocurrency market is a nonstarter for many retailers.

To get merchants on board, we’ll need to see a viable intermediary model that eases the transition by taking the gamble out of the exchange process: a network that handles and guarantees the exchange price whenever you pay in crypto. In that case, more and more stores will be able to accept crypto, which would in turn stabilize the currency itself.

One of the best reasons to hitch your wagon to cryptocurrency is its ability to curtail, if not eliminate, identity theft. Crypto is protected by a private key that should be known only to the owner. If you never share the key, it theoretically should never be stolen. However, the anonymity that makes crypto secure and reduces payment fraud is the same thing that makes ownership hard to prove if a key is stolen. In effect, whoever has the key owns the crypto.

As crypto usage grows, so will targeted hacking and phishing scams like the April 2018 attack on MyEtherWallet that resulted in users losing more than $150,000 worth of Ethereum. In preparation, entities like Bank of America are investing in patents for enhanced security for cryptocurrency keys. If banks and developers focus on securing keys while maintaining blockchain’s transparency and anonymity going forward, then crypto will be widely usable sooner rather than later.

Ten tumultuous years later, the vision of a universally accepted cryptocurrency remains just that: a vision. Along with the enthusiasts who focus on the potential, listen to the pragmatic voices pushing for cryptocurrencies to address their flaws. When you see a cryptocurrency token that steps up to broaden its focus and fill in the gaps, that’s the one you want in your wallet.

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Cryptocurrency made a poor first impression with the public when it launched, thanks to an association with criminal activity and security loopholes that were not the fault of the blockchain technology on which it runs. Widespread application possibilities got lost among the sensationalism in the news, which included constant stories harping on the radical fluctuations in the value of bitcoin and other popular cryptocurrencies.

Even by removing the bad news early on, a seismic shift from traditional fiat currency backed by banks and governments wasn’t going to happen quickly. Cryptocurrencies aren’t yet intuitive for the average consumer to use, and there aren’t many places to spend them even if consumers had been persuaded to try.

For obvious reasons, banks and credit card companies are resistant to the kind of sea change that crypto signals. Widespread adoption of cryptocurrencies in everyday usage would shift the majority of transactions away from credit cards and could put banks out of the loop entirely.

Continued resistance by banks and credit card companies, as well as an indifference and befuddlement among consumers, have created a cloud of suspicion. Nevertheless, cryptocurrency has enormous potential to change financial transactions. Blockchain technology is particularly well placed to impact retail markets, which endure weaknesses that cost merchants billions each year.

Fraught With Fraud

Identity theft of consumer payment information is at an all-time high. In 2017 alone, identity fraud resulted in $16.8 billion in loss and 16.7 million victims, as reported by Javelin Strategy & Research. Banks lose billions of dollars every year to these fraudulent transactions, and merchants carry almost the entire chargeback liability.

While Javelin’s report suggests several proactive ways customers can protect themselves, an industry pilgrimage to cryptocurrency and decentralized, blockchain-based security systems would go much farther — and would also protect retail merchants.

The best way to protect both merchant and consumer is to conduct transactions using blockchains with digital ledgers that make collecting data more reliable and secure from tampering. Blockchain transactions can be set up to create an escrow-like system that can’t release funds until both merchant and buyer confirm the agreement. The idea is to replace trust with transparency. You don’t have to hope the other party is telling the truth — the blockchain tells you whether they are or aren’t.

Freedom From Fees

The high cost of transaction settlements is another pain point in retail. Currently, each step along the retail value chain pays steeply to ensure that the exchanges of money and data are valid. These retail players must pay third parties for their services and wait on them to send payments or confirm transactions. Blockchain-based secure transactions can reduce the need for such third parties.

To be sure, the companies that handle these services and charge these fees today won’t like being the “third-party intermediary” that blockchain cuts out of the transaction loop. And to be fair, not everyone thinks a blockchain migration is necessary. Some even argue that our current system of payments works just fine. But really, who is it working for?

Merchants usually bear full liability for chargebacks, which are incredibly costly to process — not to mention ripe for fraud. Merchants, in fact, manage all of the burdens in today’s financial construction. If a consumer calls his bank to dispute a charge, and the bank accommodates the dispute and returns the money, the merchant pays for it. In fact, the merchant pays exorbitant processing fees over and above the original transaction cost. This happens because the syndicate of banks and credit card companies forces the merchants to assume all liability in order to accept payment cards.

It’s a true dilemma for merchants, who can either stick with a cash/check norm — a world in which they pretend cards don’t exist — or accept credit cards and the liability that comes with them. With few exceptions, such as niche businesses with fiercely loyal customers, merchants can’t stay in business without the ability to accept cards. Consumers will simply find somewhere else to spend their money. Accept the cards, and the merchant has a greater chance to stay in business — as long as it also accepts the liability for fraudulent transactions, not to mention the ongoing processing fees, for the privilege.

Crypto paves the way for a better payment system, one in which merchants are responsible for neither excessive processing fees nor the liability for fraudulent transactions. Blockchain makes this possible through immutable payments when transactions are publicly recorded on the blockchain. Private keys, which should only ever be exposed to the person who creates a crypto wallet and can remain forever secret to the rest of the world, are required to initiate a transaction. When a consumer sends a payment and the merchant accepts it, a public record is created and cannot be changed.

Cryptocurrency puts responsibility for preventing fraud back where it belongs. Due to the fact that only a consumer with a private key can initiate a payment, as long as the private key has been kept private, the transactions recorded on the blockchain should all be legitimate. The privacy of the key depends solely on the consumer’s discretion. This removes the need for someone other than the consumer to assume liability for fraudulent spending.

Transaction fees and protection against fraudulent chargebacks are heavy costs that impact a merchant’s bottom line. Blockchain technology could very well perform these preventive functions more efficiently and, almost certainly, at a greatly reduced cost. This should lower transaction fees that help fund security and fraud protection today. The money left on the table would benefit consumers by allowing them to spend more, which in turn benefits merchants.

A Path to Adoption

With all these benefits, why aren’t merchants rushing to adopt cryptocurrencies and blockchain? We know that fear of change itself is not the barrier for adopting blockchain and cryptocurrency, because retail is already a high-technology space. For example, retailers are already capitalizing on the Internet of Things — machine-to-machine connectivity — to streamline and enhance the shopping experience for consumers and maximize profit for merchants.

As blockchain’s potential is not limited to financial transactions, we don’t have to wait for widespread crypto acceptance before putting it to use. For example, tracking retail inventory, particularly in overstocking and understocking, can be enhanced by using blockchain. Its ability to gather accurate information reduces product waste along the supply chain. All of these features increase retail efficiency for merchant and consumer alike, potentially saving money on all sides.

The true barrier to widespread blockchain adoption with crypto is that it’s still too complicated. An overwhelming array of coins, prevailing public confusion, and too many logistical hurdles leaves retailers in no hurry to accept cryptocurrency as a payment type.

Literally thousands of cryptocurrencies exist, but none of them yet has all of the specific capabilities — transaction speed being just one example — needed to thrive in retail. Mobile payment networks exist, but none that functions as a point of exchange for crypto and fiat currencies. Having both a network and a token that work together will pave the way for more widespread acceptance, but only if crypto can offer the same use incentives to merchants and consumers that credit cards currently do.

A complete changeover to crypto as the universally accepted payment, or even a shift that makes it just another form of payment among older ones, will not change the fundamental needs for merchants. Crypto isn’t a revolution; rather, it’s an enhancement that increases efficiency, strengthens security, and adds value — all of which makes retail better. From the particular standpoint of improving security and reducing fraud, blockchain and crypto would add important benefits for merchants as a whole, provided they continued to meet the day-to-day functions of doing business.

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