‘Money Reimagined’ is a weekly column that analyzes events and trends in the technological, economic and social sectors that are redefining the relationship between money and humans or changing the global financial system.
Global payment company PayPal announced this week that it has launched a cryptocurrency payment service for US customers. In an interview with Reuters, PayPal CEO Dan Schulman said, “I think cryptocurrency is in a transitional period from an asset class for trading itself to a legitimate payment method that can actually be used by millions of merchants.” .
The word’transition’ is very appropriate to express the current situation. This is especially true of PayPal’s cryptocurrency users. Last fall, PayPal launched some cryptocurrency trading services such as Bitcoin (BTC) and Ether (ETH) on its platform, but the service was very limited, such as not being able to deposit and withdrawal other than buying and selling cryptocurrencies.
Even today, cryptocurrency in PayPal is mainly used as a gambling asset for betting on price fluctuations. But, in fact, this is probably the most popular use case, at least among those who do not have to use cryptocurrency as a payment method.
Still, you can’t deposit or withdraw digital assets on PayPal. In these days when assets are forfeited and bank creditors’ losses are involuntarily shared, it is unfortunate that the benefits of cryptocurrency technology that guarantees self-control over money are not fully utilized, but it can be used as a payment method after purchasing goods. done.
How many people will use this feature? Immediately after PayPal’s announcement, Twitter received unusually loud welcome words, but it is also true that a look at the past history of having struggled for a long time in establishing cryptocurrency as a payment method raises some doubts.
This is a prediction made in 2013 as someone who believed that payment services could be a major use case for Bitcoin.
The age of innocence
Even back in 2013, there were some doubts.
In the case of bitcoin payment, it is inconvenient for ordinary consumers to buy goods in stores and use bitcoin as a payment method, as there is a waiting time of about 20 minutes to receive transaction confirmation. If the customer leaves the store before the merchant is approved for the transaction, the merchant will take a risk depending on the purchase amount. However, in a way, credit card payments also pose this risk. This is because, in the case of credit card payment, the transaction has not been completed until that point from the seller’s point of view, because the payment made by the customer is deposited into the merchant’s account after 2-3 days.
In some ways, Bitcoin can be an alternative to Visa, MasterCard, PayPal, or another payment method… First, for a merchant, Bitcoin payments do not cost anything (the person who sends the bitcoin can pay an additional transaction fee equivalent to a few pennies for faster payment processing).
Traders who are concerned about the volatile bitcoin-dollar exchange rate can use a payment processor without risk of exchange rate, and the company can receive bitcoin instead of the merchant and send it in dollars or euros. You only need to pay a 1% fee to use these services, and it’s cheaper than a credit card that pays a 2~3% fee. Merchants can benefit from bitcoin without worrying about bitcoin price…
Years after that, in 2017, as the Bitcoin bull market continued and network traffic became congested, fees from only a few pennies jumped to a few dollars. I had to admit that I did it.
And as the bitcoin market recently boomed again, the time it takes to authorize payments has increased, and transaction fees have soared to a few dozen dollars. A Tesla customer, who bought a new car and tried to pay for the car in bitcoin, gave up on payment due to a longer waiting time.
@elonmusk Thought I’d be hip and pay my Model Y deposit in #BTC, but my crypto app took longer than Tesla’s half hour window to send – now the BTC seems lost and no one is able to help. Not good for mass adoption.
— Kyle Garnick (@kylegahnick) March 29, 2021
[트윗] Tweet by Kyle Garnick: @elonmusk I thought buying Model Y in bitcoin would be heaps up, but the transfer time from the cryptocurrency app took longer than the Tesla 30-minute charging time. The payment was jammed, but there is nowhere to get help. Not suitable for popularization.
There are, of course, other blockchains with higher throughput and lower transaction fees, but none of them have the same security, network effect, and recognition as Bitcoin. The closest competitor is Ethereum, but Ethereum also has network scalability problems.
Above all, price volatility is a problem with cryptocurrency, and since the U.S. government classifies digital currency as a property, even if you buy a can of dog food with DOGE, you are subject to reporting and tax payment.
Not all of these issues will have a good short-term impact on people’s use of cryptocurrency in everyday commerce.
If the value of money changes every minute, and you have to wait an hour to pay 20 dollars, as well as pay taxes, why would you pay with cryptocurrency when buying baby diapers at Walmart? Just pay with a credit card and go to the other business at that time.
Wind of change?
Here, once again, like an American living in a remote country, there is evidence that cryptocurrency is gaining popularity as a means of exchange in countries where payment systems are not yet in place.
In addition, on-chain transactions are not the only way to transfer small amounts of digital currency, and like Bitcoin’s Lightning Network, the Layer 2 system can process transactions quickly and at low prices as before. It allows you Jack Mahler, one of the promising entrepreneurs in the cryptocurrency industry and founder of a bitcoin startup, is working on a project to trade bitcoins and dollars interchangeably using the Lightning system in partnership with Visa.
Long-term holding of bitcoin is a respectable investment strategy, but it is argued that if it succeeds as “electronic cash,” as Bitcoin founder Satoshi Nakamoto said, it can become “digital gold”, a newly proposed value today There is also. CoinDesk’s research director Noel Acheson wrote an article like this a few weeks ago.
First of all, the value as a means of storing value depends on the usefulness of Bitcoin itself. Regardless of the price, if there is a lot of residual demand to use bitcoin as a payment method, you can invest with the belief that the demand for bitcoin will continue to increase accordingly.
In addition, even for the health of the Bitcoin network, the number of people who use Bitcoin as a payment method must continue to increase. The reason is that every time a new bitcoin block is mined, there will be a successive half-life in which the number of bitcoins awarded as rewards will be halved. As the rewards that can be received when mining Bitcoin blocks decrease, miners will move according to transaction fees.
Fortunately, PayPal is preparing for this. PayPal will not charge high selling fees as usual when customers use the Checkout with Crypto feature. When purchasing, you have to sell and buy the cryptocurrency you hold).
Customers don’t have to worry about on-chain fees or transaction approval times, instead PayPal and its partner Paxos do the hard work. It also plans to reduce the burden on the tax process by providing a Form 1099 for US customers to document the transaction of cryptocurrency transactions and report the transaction to the US Internal Revenue Service (IRS).
In a situation where consumers are forced to pay taxes while buying a cup of coffee and overcome the feeling of not wanting to spend today on coins that might trade more expensive tomorrow, will all of this be a sufficient reward? For PayPal, which has 29 million merchants around the world, this will be a difficult target. But I’m eagerly hoping that my predictions will go wrong again.
Article in English: Joonhyuk Lim Edited by CoinDesk Korea
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