COMMENTARY: The Case for Cryptocurrencies As the Future of Digital Payments

The history of payments in the last century has been a fascinating journey. From gold-backed paper currency to a fiat model that grew beside the convenient credit card system, the method in which we transact has always been reflective of society’s technological capabilities at that time. Even as late as the previous decade, credit cards were widely hailed as the easiest payment system to date. 

But now a re-invention of payments is far overdue. The credit card system cannot fully leverage the global reach of the Internet, and so we must work toward the next payment innovation: cryptocurrencies.

The year 2008 was historic for finance as we know it. Not only did that year give us one of the greatest financial collapses in recorded history, but it also provided us with a possible solution for such calamities: Bitcoin. 

As the generation that grew up during the financial crisis and the expansion of the Internet, Millennials realized the shortcomings of banks and credit cards (high service fees, fraud, and annual charges). Instead, they sought to promote a digital currency that was more apt for the age of the Internet. Indeed, a Sustany Capital study found that around 88% of Millennials want to own cryptocurrencies as an investment. As the age group that constitutes the largest portion of the current workforce, Millennials will shape the future for all-digital payments. 

A recent study from Piplsay observed that Millennials were most likely to adopt cryptocurrencies as a form of payment, with 53% stating that they were very likely to purchase products and services with crypto. Meanwhile, a report by PaySafe found that 53% of Gen Z preferred shopping in stores offering contactless payments. These statistics all point toward a digital future where, eventually, credit cards and the technology they run on could be rendered obsolete. 

Compared to credit cards, crypto-payment services charge significantly lower fees, are resistant to fraud due to the security of blockchain technology, and allow cross-border payments that bypass FX conversion rates. With all the convenience of modern credit cards, but without the high interest rates and risks, cryptocurrencies are the next-gen-payment solution for a digital society.

But with so many cryptocurrencies in the market and traditional financial-services companies switching over to offer dubious crypto services, how do we make sense of the noise? And, perhaps even more important, if consumers continue to push for crypto spending options, where will that leave retailers and merchants?

The promise of cryptocurrency is simple: a globally connected, decentralized payments network that allows fast, secure payments, including cross-border payments. Have we been able to create such a system? Yes and no. The industry has developed the means and technology (blockchain), but there are very few services that can actually make direct payments via cryptocurrencies, despite all the clever marketing that makes it seem that way.

The point is to be able to pay directly with cryptocurrencies without going through the old, familiar loop of crypto-to-fiat conversions. The new “crypto credit cards” issued by leading payment companies that have recently made headlines (think Gemini and Mastercard) only work by continuing to do such crypto-to-fiat conversions, where customers spend their cryptocurrencies via credit card. 

The key consideration is this: crypto payment offerings, such as these new credit cards, don’t benefit the merchant. For retailers that accept these transactions, they look no different from today’s credit options and corresponding issues: transaction fees, chargebacks, card declines, risk of fraud, and slow settlement speeds.

This ends up hurting the very vision of cryptocurrencies, to be an economical and efficient online payment service that removes intermediaries. We should focus on the promising and young industry of crypto. And we should trust historical statistics and market trends, just as we would with stocks, to guide us in our choice of coin or token, on where we choose to invest, and on what we then choose to spend crypto on. 

While cryptocurrencies may be volatile, they are not cryptic. There are ways to be methodical and preemptive with them. And there are ways for everyone—consumers and merchants—to win.

—Peter Jensen is the chief executive of RocketFuel Blockchain Inc., San Francisco.