We’ve come a long way from the days of uncertain online payments. Until around 10 years ago, many of us were sceptical and fearful of putting our trust into online vendors. Fast forward to 2018 and shoppers confess to making 80% of their purchases online, excluding groceries.
With the huge increase in online shopping comes more alternatives to conventional payment. In 2009, Satoshi Nakamoto – then anonymous – invented the first decentralised cryptocurrency, Bitcoin. Before this, there had been numerous failed attempts to create a virtual currency, with no restrictions.
Although Bitcoin remains the most popular cryptocurrency, there has been an emergence of many forms of virtual money since its invention. Cryptocurrencies are now being used across the globe to purchase items from jewellery to pizza.
Is it time for ecommerce companies to get on board? Keep reading as we discuss how cryptocurrencies work and whether they should be top of the ecommerce agenda.
What is a cryptocurrency?
The world of online currencies is complex and difficult to understand for many. Essentially, cryptocurrencies are limited entries into a database that cannot be changed without fulfilling specific conditions. In this sense, they work in the same way as physical money.
The money in your purse or wallet right now is simply a physical entry into a database, that can’t be changed unless you fulfil certain conditions. You must physically own the coins and notes to have them in your possession and you only lose that money if you pass ownership onto someone else in exchange for items.
Cryptocurrencies work in a similar way. They sit in your account until you want to exchange them for something else, in which case you pass ownership on. It’s just harder to visualise and understand because, rather than physical money that you can see and feel, cryptocurrency is a set of digital codes.
How do payments work?
To understand the use of cryptocurrency, we must first look at how the transactions are processed. Cryptocurrencies are made up of a network of peers – people who have completed a computer puzzle to prove their skill. Each of the individual peers has access to a complete history of every single transaction made and the balance of every account.
Every transaction is saved as a file with the identity of the two people involved signed off by the sender of the currency. Once the transaction has been signed off, it’s broadcast in the network, sent by one peer to the rest.
Advantages of using cryptocurrencies
With more and more companies and individuals using cryptocurrencies as a payment alternative, it’s only natural that people are curious about the benefits. Is using a cryptocurrency better than traditional payment options?
Perhaps the biggest benefit of cryptocurrencies is the global reach. Unlike traditional currency, virtual money isn’t tied to a specific country or region of the world. One Bitcoin is still one Bitcoin whether you’re spending it in the UK or China.
The process is much faster than normal online payments too. The completion of a transaction is only dependent on the sender of the money signing off on the payment, so transactions are completed almost immediately, with no delay from location. Whether you’re sending a payment to your next-door neighbour or the other side of the world, the transaction will take the same amount of time.
Another bonus of using cryptocurrencies is the security that comes with owning virtual money. Funds are locked within a public key system. But only the owner of a private key can access and send money. You probably have more chance of breaking into Alcatraz than you do of accessing someone else’s cryptocurrency.
Disadvantages of cryptocurrencies
While there are clearly some benefits to using this new form of payment, there are also some downsides. Firstly, there are plenty of risks when it comes to buying and selling cryptocurrency. Bitcoin, for example, fluctuates by the minute.
Putting this into context, on the 14th of September, one Bitcoin was worth £5014.34 at 3:30am, dropping down to £4889.92 at 9:00am. That’s just less than £125 lost in 5 and a half hours!
Another negative to using cryptocurrencies is that any transactions are irreversible. Once a payment has been processed and signed off, it cannot be changed under any circumstances. Even Satoshi Nakamoto himself can’t do anything about it.
Any mistakes, scams or hacks are permanent. There are no refunds and no safety nets. That means, when dealing with this type of currency, you must be extra careful in any purchases you make.
Cryptocurrency transactions are also very hard to trace. The identity of the buyer or seller is only known by a 30-character address that is almost impossible to associate with an individual. Due to the nature of the transactions, the data gets lost in the mass of code making up the internet. This could be a benefit for some, who like to remain anonymous. However, it also attracts and supports criminal activity, with many cryptocurrencies being used to make purchases on the dark web.
Should your ecommerce business support cryptocurrency?
Despite the advantages and disadvantages of cryptocurrency, the fact remains that more and more people are using it to make purchases. So, accommodating for these people is important if you want your business to grow alongside the evolving market. With not much to lose, and a lot to gain, the choice seems obvious.
Magento, the most popular ecommerce platform, has a range of extensions that allow customers to purchase products using cryptocurrencies, such as Bitcoin. At Bing Digital, we specialise in Magento ecommerce sites, with a team of experts ready to help your ecommerce company thrive. With our design and development service, we can advise and support you on your journey to becoming cryptocurrency compatible.