7 minute read
*Editor's note: This article was updated on February 24, 2023, from its original publish date of April 25, 2022.
In 2022, cryptocurrency—crypto for short—jumped to the mainstream. You probably know someone who's dabbled with it. If not, you've probably seen the star-studded ads. Maybe during this year's Super Bowl, dubbed the “Crypto Bowl," when four cryptocurrency companies made their debut during coveted commercial slots. But coins and tokens are just the beginning. Other applications for the blockchain—like NFTs and the metaverse—are quickly capturing the world's attention, too.
Big institutions are taking notice. As predicted in our 2022 Commerce and Payment Trends Report, major payment providers are incorporating crypto into key programs and products—like loyalty, rewards and digital wallets. Yes, market volatility still presents a big challenge, but crypto is likely here to stay. So, what role will cryptocurrency play in the future of commerce? Before we make predictions, let's look at where the market stands today. And if you're already feeling lost (with blockchain, NFTs and the metaverse), don't worry. Here's a quick primer.
Crypto at a glance
There are over 18,000 cryptocurrencies, with a market capitalization of $1.7 trillion. An estimated 300 million consumers own cryptocurrencies, and $91 billion in cryptocurrency is traded every 24 hours. While blockchain-based cryptocurrency might still be considered niche today, the numbers show that won't be the case for long.
Most cryptocurrencies are built using blockchain technology, which is essentially a public, distributed ledger. No one person or business owns the system of record, and anyone within a network can verify transactions or the ownership of an asset for themselves. Blockchain technology offers some exciting benefits. It solves problems of record keeping, and it offers a public audit trail for all types of transactions, including cryptocurrency payments.
But the decentralized nature of cryptocurrencies also comes with risk. They rely on security and encryption principles that many don't understand. They're often privately owned or created, which means the security of your investment can depend on whether individuals you don't know prove trustworthy. They're also currently largely unregulated. And cryptocurrency's value is often unstable, impacted by dramatic fluctuations of supply and demand that traditional currencies are more resilient to. One attempt to solve these issues is the concept of the “stablecoin."
The emergence of stablecoins
In 2021, the supply of stablecoins—cryptocurrencies that use physical commodities (like gold), assets (like stocks), or fiat currency (like the US dollar) as collateral—grew by almost 500% year over year, with a market capitalization over $127 billion. While still unregulated, stablecoins are potentially less volatile than other cryptocurrencies because of their collateral backing, making it easier for financial institutions to validate transactions and participate in blockchain networks.
The potential of central bank digital currencies
By offering alternatives to centralized financial systems, crypto has the potential to undermine government currencies and monetary control. Governments are trying to get ahead of this threat, and they're increasingly interested in taking advantage of the opportunities digital currencies offer for themselves. This has led to the rise of central bank digital currencies, or CBDCs, backed by government assets or fiat currencies. As of 2023:
- Eleven countries have fully launched a central bank digital currency (CBDC), including Nigeria and The Bahamas.
- Seventeen countries are piloting CBDCs, including China and South Korea.
- Seventy-two countries are researching or developing a CBDC, including the US, Canada, the UK, and several EU countries.
Meanwhile, governments are working out how to regulate digital currencies. In March, US President Biden signed an executive order calling on the government to examine the risks and benefits of cryptocurrencies — the first step to a federal approach to regulation and oversight. And the International Monetary Fund is actively advocating for a unified regulatory approach to protect the stability of the global financial system. Expect more development as governments take a more active role in this space.
Looking to the future of crypto
According to Andrew Mathieson, chief enterprise initiatives officer at Global Payments, cryptocurrencies—or any digital currency—are just new forms of money. In the future, they could theoretically be used for any of the things we use money for today. That includes purchasing and holding cryptocurrencies in a digital wallet, earning rewards or redeeming loyalty points in crypto and even using cryptocurrency as the agreed-upon tender between businesses and customers.
But there are still hurdles to overcome for crypto to gain universal acceptance as a form of money. Because of the volatility of unregulated cryptocurrencies, it might be years before we see the majority of businesses accepting cryptocurrency for payment. Even though companies like Starbucks accept cryptocurrency payments today, the risk is still too high for most companies.
Short term, it's more likely that businesses will take smaller steps into the space, like offering cryptocurrency as rewards. In fact, 44% of Americans would be interested in receiving cryptocurrency as a reward in place of traditional cash-back programs, setting the stage for new business opportunities.
- Shake Shack now offers rewards in Bitcoin for customers that pay through Cash App.
- Cryptocurrency exchanges BlockFi and Gemini plan to launch credit cards offering Bitcoin as reward points.
- Venmo card holders can trade their monthly cash-back rewards for crypto.
- This trend is accelerating, and we're likely to see more companies leverage crypto-as-rewards in the future.
"Offering cryptocurrency rewards can help brands attract and engage with younger audiences, driving richer consumer experiences and increased brand loyalty." —Dan O'Prey, Chief Product Officer at Bakkt
“Offering cryptocurrency rewards can help brands attract and engage with younger audiences, driving richer consumer experiences and increased brand loyalty," said Dan O'Prey, Chief Product Officer at Bakkt. “Our recent survey found that 72% of those who purchased crypto in the past six months are likely to redeem loyalty points for cryptocurrency. And about half are interested in earning crypto instead of points. As a result, loyalty programs can be on the leading edge by providing customers with the option to earn rewards or redeem rewards for crypto."
Crypto as an investment
According to Mathieson, cryptocurrency today is primarily used as an investment vehicle. “Consumers may be buying and selling cryptocurrency, but they're either holding on to it or cashing it in rather than using it as a form of payment."
But that could be changing. Research shows consumers are increasingly open to the idea of using cryptocurrency as money in their day-to-day lives. And 93% percent of cryptocurrency owners say they would consider making a future purchase with digital currency.
"Cryptocurrency is primarily an investment vehicle."
Chief Enterprise Initiatives Officer, Global Payments
Digital wallets drive comfort for future crypto use
The growing use of digital wallets and digital payment apps like Venmo and Cash App shows that consumers are increasingly comfortable with digital currencies and payments. And this will likely extend to crypto for purchases as well. If you can use a digital wallet to pay for goods and services with your credit or debit card, why not use the cryptocurrency you have stored there as well?
The largest consumer audience is leading the way
Not surprisingly, it's millennial and Gen Z consumers that are helping to drive the shift to cryptocurrency. Nineteen percent of millennials and 15% of Gen Z currently own cryptocurrency own cryptocurrency, and they're looking to spend it. In the same study, 51% of crypto owners reported they are more likely to buy from businesses that accept cryptocurrency.
Though millennials and Gen Z may be early crypto adopters, all generations are considering the role cryptocurrency plays in the economic system. In a study, 30% of respondents said cryptocurrency was the future of money.
So, what does all this crypto mean for businesses?
Clear market drivers are lining up to widen the role of cryptocurrency in commerce. Consumer demand is increasing, government interest is rising and regulators are starting to create policies.
We anticipate an uptick in demand from crypto-savvy consumers, and businesses should prime themselves to take advantage. Step one: a conversation with your payment partner about the cryptocurrency landscape and the varied use cases and opportunities it presents.
Learn how you can start accepting cryptocurrency in your business. To get our latest trends, download our 2023 Commerce and Payment Trends Report. And stay up to date on the latest technology impacting payments and commerce by subscribing to our Payments in Focus newsletter.