Cryptocurrency: Everything Retailers Need To Know
Cryptocurrency is one of the key topics retailers will encounter in the digital world in the current decade. However, if we as a society and a business community don’t get a handle on this now, there’s a risk that laws will be written by cryptocurrency investors who have the most to gain and who have an incentive to avoid regulation.
People often use cryptocurrency as a buzzword without truly understanding the fundamentals. In our October 2021 webinar, we demystified the crypto basics, examined the pros and cons, and shared our take on whether retailers should accept cryptocurrencies. Here are some highlights from our webinar:
What Is Blockchain?
Blockchain is not a “thing”; it’s an architectural principle that can be represented in software in a variety of ways. The main characteristics are:
- Write once; append only
- Cryptographically secured (but not by default encrypted)
- Distributed wholly or partially replicated; uses some form of consensus mechanism
- Can (but need not) feature a coin or token
- May support smart contract capabilities to facilitate execution of business logic
There are two main categories of blockchain: public/permissionless and private/permissioned. In public blockchains like Bitcoin or Ethereum, anybody can participate. And when we say anybody, we mean anybody. Even though participation is pseudonymous, there is no such thing as personal privacy or commercial confidentiality.
What Are The Use Cases Of Blockchain In Retail?
Among many use cases for blockchain as a technology, the most common ones in use by retailers today include loyalty programs, supporting supply chain and logistics processes, proving provenance, and tracking goods. In our webinar, we particularly focused on cryptocurrencies.
What Should Retailers Know About Cryptocurrencies?
As of October 2021, there were about 7,000 cryptocurrencies. They are mathematically created and have no backing asset; their value is determined by what market participants are prepared to pay for them. Cryptocurrencies were designed specifically to evade central authority, and there is no regulation or consumer protection. Many cryptocurrencies have a negative environmental impact (especially Bitcoin) due to their energy consumption and other resource requirements. Today, the primary use of cryptocurrencies is as a speculative investment, not as a payment mechanism.
Should Retailers Accept Cryptocurrencies?
In the absence of discernible consumer pull, whether or not to accept cryptocurrencies depends on an individual merchant’s product portfolio, access to mainstream payment methods, and willingness or desire to be associated with cryptocurrency acceptance. Should a retailer decide to accept cryptocurrencies, the most important decision is whether to accept and hold these directly or whether to just offer it as a payment option via a third-party provider that handles conversions and transfers fiat currency to the merchant. Retailers also need to be aware that settlement isn’t necessarily any faster than with existing payment mechanisms. In addition (depending on jurisdiction), there are potentially complex tax implications for both the merchant and customer; and there’s no payment protection, no reversing of transactions, and no chargeback.
Listen to our recent webinar, Retail Lens: Everything You Wondered About Crypto, Bitcoin, And Digital Currencies, for a crash course on the state of cryptocurrencies, stablecoins, and central bank digital currency (CBDC), non-fungible tokens (NFTs), and the future of digital currency.
Research Associate Taylor Hansen contributed to this post.