By Rob Binns | Expert Market
Blockchain. It’s been one of the buzziest buzzwords of the last three years. And, while blockchain is by no means a new thing (especially when every week seemingly brings game-changing technology into the world), it’s still a long way off becoming a household name.
Yet the potential it holds is infinite, and blockchain is already making its presence felt in industries such as finance, real estate, and retail. The most immediate impact blockchain stands to make, though, is on the payments industry – securely facilitating and recording the transmission of online funds.
Sure, the day you’ll be using blockchain to pay for your groceries is still a distant blip on the horizon. But in the here and now, blockchain is already making waves in the payments industry – and, whether you’re selling, buying, or just observing, you need to know about it.
So, can blockchain really be used for accepting merchant payment? If so, why isn’t it being used widely… and should it be? Read on as we tackle the questions defining the current landscape of ecommerce, and the increasingly important role that blockchain and cryptocurrency will have to play.
What is blockchain?
Blockchain can be defined as a way of recording, storing, and distributing – but, crucially, not editing – digital information. Blockchain is made up of two parts – the piece of digital information (the “block”) and the public database that connects and validates that data (the “chain”). It’s kind of like a digital footprint for the transmission of information or money between parties.
Right… but what’s so special about that?
Well, what makes blockchain so valuable is that it’s decentralised – there’s no central authority or server to dictate the terms. Rather, blockchain transactions are maintained by a peer-to-peer network of computers that verify the amount and time of the trade, and confirm its participants.
All information in the blockchain network is viewable by anybody and everybody, encouraging the transparency and accountability of all transactions passing through it.
Sure, that all sounds good – but how is blockchain going to help you make or accept payments in the real world? Let’s take a look.
Can blockchain be used by merchants to accept payments?
Yes, it can – or, to be more precise, it already is. And this is where Bitcoin comes in.
While blockchain has been around since the early 1990s (when it was introduced by researchers as a system for recording document timestamps), it wasn’t until Bitcoin arrived in 2009 that blockchain began to realise its full potential.
Bitcoin is a form of cryptocurrency – a decentralised, digital medium of exchange immune to the interference of governments or banks. Bitcoin is built on blockchain, and as such embodies the same principles of transparency, immutability, and democracy as the network it’s leveraged on.
Basically, cryptocurrency makes it possible to make and take payments using blockchain. And, while in our times this is still somewhat of an exception rather than the rule (you won’t see the option to pay with Bitcoin on Amazon or Asos, for instance), blockchain payments are catching on.
Merchants can now use a cryptocurrency wallet such as BitPay to receive blockchain payments online. This takes the form of a payments button on the seller’s website, or an embeddable invoice. Once the payment is accepted, it’s then converted into the merchant’s local currency.
Thus, utilising blockchain to take payments as a merchant isn’t only possible – it’s actually far more simple than it sounds.
Should blockchain be used for accepting merchant payments?
There are arguments both for and against the use of blockchain to take payments in 2020. Let’s start with the cons…
To make payments through the blockchain network, you’ll need to be trading in cryptocurrency. That means you’ll have to be willing to spend your hard-earned cash on one or more of these virtual currencies, such as Bitcoin, LiteCoin, or Ethereum (there are thousands).
While this is easy to do, it may not be a wise thing to do. Cryptocurrencies are a mercurial, volatile proposition, and are subject to drastic price hikes and crashes. Largely down to the small size of its market and its fair share of bad publicity, cryptocurrency is by no means a safe investment.
For instance, the worth of a single Bitcoin at the time of writing (1:20pm, January 31st) is £7,015.15. If I’d been penning this paragraph just two and a half hours earlier, that same piece of digital currency (1 BTC) would have been worth another £300. If I’d been writing this six months ago, it would have been worth over £10,000.
All that said, using blockchain for merchant payments is kind of the future. And it’s got a lot going for it. For one, it’s cheaper.
Well, at the moment, merchants have to rely on card networks (think Mastercard, Visa, and American Express) to facilitate credit and debit card payments for them. That’s all well and good (these networks do authorise and process the transaction, after all) but there’s an issue… they’re expensive.
Companies such as Visa and Mastercard charge interchange fees to maintain their own networks (and make a profit), and these inevitably end up coming out of the merchant’s pocket. Sellers wishing to accept online or face-to-face card payments may also be faced with minimum monthly charges, PDQ machine rental, and chargeback costs, if a customer raises a dispute.
Blockchain payments, however (which, remember, are decentralised) bypass the need for both the third-party middlemen and the cut they take. Basically, that means zero transaction fees for merchants.
Plus, blockchain payments are faster, more secure, and increase transparency across the payment process. blockchain’s very nature also means it serves as a ready-made financial record; simplifying bookkeeping, while also helping merchants to avoid the impact of those dreaded chargeback fees.
Again, there’s a case both for and against merchants using blockchain right now. Sure, it has its issues – but so do the card networks already processing hundreds of millions of transactions every day. But if blockchain is so safe, so secure, so speedy… why isn’t everyone already using it?
There are a few reasons.
Complexity is one. Because, though it’s been around for a fair while now, not many people know what blockchain is (let alone what it actually does). A coin, a credit card, a crisp £10 note with the Queen’s face gazing longingly back at you… that we understand. A decentralised process of recording transactions and shifting virtual currency via an open source, peer-to-peer network? Nah.
Accessibility to blockchain technology is another barrier to its widespread use. Essentially, not many people use cryptocurrency, and even fewer retailers accept it. And unless paying with Bitcoin becomes as easy as handing over a fiver or hovering a smartphone over a card machine, it’s unlikely that Bitcoin trading is going to be an overnight success.
Finally, there’s the issue of scalability. Currently, blockchain payments come with their own limitations. Even aside from its aforementioned volatility, cryptocurrency is stymied by the number of simultaneous transactions it can process, as well as high transaction costs. Blockchain payments… are just not that ready to be popular yet.
So what does the future have in store for them?
What’s next for the use of blockchain in merchant payments?
Make no mistake – blockchain is the future. Just as the first version of the internet arrived in the 1960s but wouldn’t gain wider appeal until the 1990s, at least, so will blockchain take its sweet time to wrap its way around our hearts and wallets.
That said, there’s no reason you can’t do your bit to speed things up. For customers, buying cryptocurrency is as simple as downloading an app, and putting a few pounds in there.
And for merchants, accepting payments through the blockchain network isn’t as difficult as it might seem at first glance. For example, many Bitcoin payment gateways that work with ecommerce site shopping carts, such as Shopify or Magento, are now available.
It’ll still be a while before any of this boils down to a blockchain payment solution that possesses anything near the speed and efficiency of something like Apple Pay, or contactless cards. But that’s what we’re moving towards, with intelligent, incendiary next-gen blockchain infrastructure ready to ignite the exposed touchpaper of the payments industry.
Whether you get in before it goes boom is up to you.
Rob Binns writes for Expert Market, a leading B2B comparison site empowering businesses across the UK and beyond. He specialises in analysis of merchant accounts and the payment industry. He’s happiest when unpacking the latest contactless trends and technologies, and discussing what these insights mean for business owners.
Interesting related article: “What is a Cryptocurrency?“