As blockchain technology is becoming a driving force in the economy all around the world, several industries are starting to adopt this technology in their businesses. And e-commerce is not an exception. Especially in this COVID-19 pandemic, e-commerce's share of global retail trade still saw an increase from 14% in 2019 to about 20% in 2021, demonstrating that it’s a proper opportunity for e-commerce businesses. Then, several e-commerces want to integrate blockchain technology into their platforms to bring better experience and convenience for customers, especially blockchain in e-commerce. Nowadays, cryptocurrency adoption in e-commerce is attracted enormous attention currently. So, let's see the benefits and challenges of applying cryptocurrencies for e-commerce platforms!
1. What are cryptocurrencies?
Cryptocurrency is one of the essential factors that foster the development of blockchain in e-commerce. It is a kind of digital currency that allows secure online payment through virtual “tokens”. Cryptocurrencies are based on a decentralized and distributed digital ledger to keep transactions secure and encrypted. So, blockchain, a ledger system that is distributed across a large number of computers, is used to record transaction information and verify cryptocurrency's ownership. In a blockchain network, once information is entered in nodes, it can not be altered or deleted. So, This kind of payment is highly secure and can not be hacked without alerting all partners in the network.
In contrast to traditional payment systems, where transactions are controlled by third parties such as banks, cryptocurrencies are used in a peer-to-peer payment network. It provides immutable, transparent, and shared systems while remaining private. Therefore, it can prevent tokens from being stolen. Then, adopting cryptocurrencies can bring several benefits, including better privacy and data management.
Currently, Bitcoin, created in 2009, is the most popular cryptocurrency. Although Bitcoin (BTC) is the most well-known cryptocurrency, there are many other types of digital currencies called ‘Altcoins’ (standing for “alternatives to bitcoin”) such as ETH, LTC, NEO, etc. Today, there are more than 4,000 cryptocurrencies in the world, demonstrating that the cryptocurrency and blockchain market is developing rapidly.
2. Cryptocurrencies in payment systems as a use case of blockchain in e-commerce
With the rapid blockchain development, there are several online payment applications and e-commerce platforms that integrate cryptocurrency in their payment systems. Here are some examples of adopting cryptocurrency in payment networks:
- Paypal: In March 2021, Paypal launched Checkout with Crypto for US customers to use crypto coins. Checkout with Crypto builds on the ability for PayPal users to buy, sell and hold cryptocurrencies. Users can take advantage of this new feature by converting cryptocurrency into fiat currency so that they can buy goods online through e-commerce or brand websites with cheap transaction fees. With retailers, there are no additional integration fees. After launching Checkout with Crypto in the US, it is expected to be released worldwide.
- eBay: In May 2021, eBay has signaled that it is open to the possibility of accepting cryptocurrency as a form of payment in the future. They are looking to use non-fungible tokens (NFTs) on their platforms. Since eBay is one of the most popular e-commerce platforms in the world, their announcement of adopting cryptocurrency in payment systems is a positive signal. When eBay is successful in integrating cryptocurrencies into its e-commerce platform, other e-commerces will have motivation and role-model to apply digital currency in payment networks. So, digital currency can be as common as credit cards or visa cards.
3. Benefits of using blockchain currency in e-commerce
a. Reduce the risk of fraud:
There are several problems created by cybercriminals, including hacking personal information or credit cards, leaking or deleting businesses’ data and documents. However, with Blockchain Development Services, blockchain-based platforms can contribute to tackling this problem, especially in reducing risks of fraud in e-commerce by using cryptocurrency. With a shared ledger like blockchain, all the transactions between partners and data of the supply chain are visible, transparent and information once entered the network, can not be deleted or changed without all parties knowing. Since blockchain is a distributed network, data is stored in different computers, and the risk of information loss is decreased. It is also encrypted, so the confidentiality of data is maintained. Blockchain technology makes it easier to trace information back since every activity is time-stamp recorded in the network. So, if hacking activities exist, fraud identity is verified easily.
b. Market expansion
Adopting cryptocurrency into e-commerce can help businesses widen their target market, approach more potential customers, and boost sales. Since international transactions can be cheaper and simpler with cryptocurrencies, it is a huge opportunity for brands that desire to expand the market from local to global. Additionally, using cryptocurrency brings opportunities for retailers and businesses, especially with marketplaces that only use digital currency, such as OpenBazaar. OpenBazaar is gaining attention currently, so there is much lower competition in this marketplace than the other ones. Making the first move in a market always brings an advantage for businesses, so retailers can use it to diversify their selling channels, attract more customers worldwide and improve sales.
c. Lower fees
The peer-to-peer payment network of blockchain technology ensures that transactions are irreversible and can be refunded by only receivers. In contrast, when using a credit card for payment, the owners of a card can ask for a charge-back from businesses to cover the loss on a fraudulent or disputed transaction. So, when using cryptocurrency, there are no charge-backs for retailers.
When using digital currency in e-commerce, transaction fees and the risk of charge-backs, mainly caused by frauds and disputed transactions, is lower compared to traditional payment. For customers, by using cryptocurrency, they can experience better user anonymity, no interruptions from the middleman, lower transaction fees, etc. For example, it takes only 1 cent for a transaction in the public blockchain, and the transaction fee in the private blockchain is even lower.
4. Challenges of adopting blockchain currency in e-commerce
a. Universal problems
Although the benefits of adopting blockchain in e-commerce are undeniable, it still exists several problems, especially with cryptocurrency. One of the biggest challenges when integrating cryptocurrency, a part of blockchain technology, in e-commerce is the universal problem. Cash is the common kind of payment with every generation, from older people to teenagers, while the number of people who use cryptocurrency is especially rare. Digital currency is not popular yet and people don’t have trust in this non-cash payment. So, it is hard for both customers and businesses to obtain this new kind of payment. It takes time to distribute digital currency widely for a wide range of people and build the “payment habit” for customers in e-commerce, by applying a discount program when using cryptocurrency, etc.
b. Low-speed transaction
Among all kinds of transaction payments, Visa cards still hold the highest position, followed by Ripple, a cryptocurrency. However, while Visa cards can handle 24,000 transactions per second, Ripple only handles 1,500 transactions per second. So, the speed of a successful transaction of a Visa card is 16 times higher than cryptocurrency. Currently, Ripple has the fastest speed of transaction among cryptocurrencies, compared to Bitcoin (7 transactions/second) or Litecoin (56 transactions/second). And it is one of the challenges of using cryptocurrency widely in e-commerce. For customers, fast payment means orders can be shipped instantaneously to satisfy customers’ demands for fast delivery, so enhancing transaction speed is vital. The speed of digital currency transactions has to improve to gain more users, at least at the same speed as Visa cards.
5. Final thoughts
Integrating cryptocurrencies into the payment system brings huge advantages and opportunities for your businesses to catch new potential customers and satisfy previous customers, providing them the best experience when shopping. So, please check out SotaTek if you want to start adopting cryptocurrency as a kind of payment or get to know about blockchain services, for example, applying blockchain in e-commerce. With talented and experienced teams, we have been successfully provided IT-related services in hot sectors now, such as NFT Development, DEX Development, etc for clients from over 21 countries and 350+ projects in different industries. SotaTek is confident to provide blockchain consulting, develop suitable plans and services to take advantage of blockchain technology.