El Salvador made headlines in September 2021 as the first country in the world to accept Bitcoin as its official legal tender, which marked a major milestone in the cryptocurrency world.
In contrast, nine countries — Algeria, Bangladesh, China, Egypt, Iraq, Morocco, Nepal, Qatar and Tunisia — have placed an “absolute ban” on crypto as of November 2021.
While buying and selling cryptos are becoming increasingly mainstream around the world, the opportunities to spend these digital assets are somewhat limited in comparison due to its volatility.
Other various factors such as environmental concerns and transaction fees have also hampered crypto’s adoption as a major form of payment.
There are however, a growing number of companies across different industries that have embraced cryptocurrencies, allowing customers to use them as an official method of payment for their goods and services.
More companies are accepting crypto as a payment method
Riding high on the increasing acceptance of Bitcoin and other virtual currencies, many businesses have started offering payment-related services that send and receive crypto payments.
In the United States, more than 2,300 merchants have accepted Bitcoin as a payment method.
Lush was one of the first global companies to adopt cryptocurrencies, fully embracing them in 2017 when the handmade cosmetics company started to allow Bitcoin payments for orders on its website through a partnership with Bitpay.com.
In September 2021, Twitter accepted Bitcoin as a form of payment. The addition of Bitcoin on Twitter is a major move into cryptocurrency for the social platform, though perhaps not a surprising one as Twitter CEO Jack Dorsey is a vocal proponent of crypto.
In November 2021, Mastercard said it would allow partners on its network to enable their consumers to buy, sell and hold cryptocurrency using a digital wallet, as well as reward them with digital currencies under their loyalty programmes.
The move would allow customers to earn and spend rewards in cryptocurrency rather than loyalty points.
The credit card giant will be pairing up with Bakkt Holdings Inc, the digital assets platform founded in 2018 by NYSE-owner Intercontinental Exchange, to offer the new crypto services to its customers.
In Singapore, many companies have also jumped on the crypto bandwagon.
According to Statista, about 51 businesses listed as accepting cryptocurrencies for payment in Singapore.
Local food court operator Kopitiam, for one, accepts cryptocurrencies like Bitcoin and Ethereum at its outlet in Funan mall.
Kopitiam converts the cryptocurrencies to fiat on a weekly basis with the help of its fintech partner. It also bears the risk of currency fluctuations. Stallholders at the food court will then receive their earnings in Singapore dollars.
Kopitiam CEO Alden Tan said that adopting cryptocurrencies opens up new vistas of opportunities both in payment options and additional customers.
Other stores which accept cryptocurrency payments in Singapore include Epic Gear, Oyster Bar and Artistry, among others.
There’s an increased appetite for crypto payments in S’pore
According to the latest Worldpay from FIS’ Generation Pay research,
37 per cent of Singaporeans were found to be paying or interested in paying for purchases with cryptocurrencies,
Gen Y (58 per cent) is the most open and boomers (16 per cent) are the least open to crypto payments.
The research explores the spending habits, purchasing experiences, and payment preferences across different generations, from Gen Z to baby boomers.
While it may still be a long way to go for cryptocurrencies to become a mainstream mode of payment, the high adoption rate proves that more people are beginning to understand how crypto payments work.
On the whole, findings showed that 23 per cent of respondents prefer central bank digital currencies (CBDCs) over cryptocurrencies (11 per cent) when it comes to using digital currencies as a form of payment.
Another 22 per cent indicated they have no preference and are willing to use both to pay.
For those who prefer to use cryptocurrencies, the primary reason is that it is decentralised and gives them more autonomy with their money (67 per cent). This is a particularly compelling reason for majority of Gen Y.
On the other hand, the main reason cited by those who prefer to use CBDCs is that it would be more secure being backed by the government (64 per cent).
Other reasons turning them away from cryptocurrencies include their perception that crypto wallets are more vulnerable (31 per cent) and that cryptocurrencies might be used in illegal activities (30 per cent).
Advantages of Bitcoin payment services
Compared to a standard credit card payment, bitcoin payments purport to be relatively cheaper due to lower transaction costs.
A payment service, like BitPay, charges a flat one per cent settlement fee to the merchant, compared to two per cent or three per cent, charged by the fiat currency credit card processing service.
When a customer pays with cryptocurrency, their data isn’t stored in a centralised hub where data breaches commonly occur. Rather, their information is stored in their crypto wallet. Plus, the blockchain general ledger is used to verify and record every transaction, making it very difficult, if not impossible, to steal someone’s identity.
Moreover, transactions are irreversible. Once a cryptocurrency payment goes through, it is permanent (transactions can be refunded only by the party receiving the funds).
This irreversibility helps business owners better manage their cashflow — there are no chargebacks to worry about, and if someone requires a refund, the retailer has to manually pay them back. This forces the company to keep immaculate records.
Bitcoin payment services also allow a borderless payment network, which enables seamless transfer of bitcoins in any amount from anywhere across the globe, through any mobile or computer, to the merchant’s account in a large number of countries in a currency of merchant’s choice.
Bitcoin payment services claim to maintain transparency in the highly dynamic exchange rates between bitcoin and the fiat currency.
Using such services, a merchant not only gets various mediums to accept global payments, but they also get a reliable and authentic identity in the virtual world of cryptocurrencies, which is much safer, transparent, and dependable for getting payments.
Imagine being asked to make a direct payment to an individual bitcoin wallet, versus seeing the payment being processed through the network of an established payment service provider – a customer would find the latter more trustworthy to proceed with. That is the value-add a business gets from such services.
But Bitcoin as a transactional currency is still very risky
Bitcoin, however, has several characteristics that make it unsuitable for use as a transactional currency.
Cryptocurrency is extremely sensitive to news headlines. For example, after Google announced plans to ban cryptocurrency advertising, the overall value crashed by US$60 billion.
Separately, the price of bitcoin hit a three-week high in June last year, climbing back above US$40,000 after Elon Musk said that Tesla would resume allowing transactions made in the digital currency once crypto mining becomes greener.
The volatility of Bitcoin suggests that both consumers and merchants bear exchange-rate risk, which arises from the need to change fiat currency to Bitcoin.
For instance, in 2010, we saw the first ever commercial transaction using Bitcoin to purchase a pair of pizzas for 10,000 Bitcoins – what is said to equate to about US$40 then would cost almost US$400 million today.
The inefficiency of blockchain with transactions taking hours, even days, to be confirmed, and the use of proof of work in Bitcoin mining also results in excessive electricity use, leading to sustainability issues.
As such, it is unlikely that Bitcoin will see widespread adoption locally as a currency for transactions, although other forms of virtual currencies or stable coins with values pegged to certain fiat currencies may see wider adoption as a currency for transactions.
Furthermore, there are limited regulatory protections for the customers of cryptocurrencies, which mean that unlike e-money stored in an EZ-Link card or in a bank account, should the company become insolvent, the customers of cryptocurrencies may well lose the entire amount.
In this regard, the Monetary Authority of Singapore (MAS) has required cryptocurrency firms to make clear and appropriate disclosures to their customers, including merchants, so that all customers are aware of the risks.
Cryptocurrencies are not legal tender, nor are they securities. Instead, they are considered goods, just like collectors’ cards which people can buy from vending machines or shops. And as a good, they can be used as a medium of exchange.
The prices of cryptocurrencies can be highly volatile and are often speculative in nature. This is not surprising given that factually and scientifically, cryptocurrencies are nothing more than bytes of data sitting on computers in networks.
They are not pegged to any nation’s economy or economic fundamentals and their value cannot be objectively measured or ascertained. Their values are simply what people think they are worth, very much like collectible cards, and even fluctuating according to the tweets of billionaires like Musk.
Unfortunately, many wallets and other crypto products are also still too complex and not built for mainstream users.
As such, we’re a little further way from a true ‘aha’ moment of onboarding hundreds of millions of users who are not technically savvy.
Singapore is currently exploring a “digital Singapore dollar”
Singapore is among countries seen to have taken a friendlier approach towards crypto and digital assets as it seeks to reap the benefits of innovation while safeguarding against compliance risks.
It has announced that it aims to be a global crypto hub, which will enhance the reputation of not just the country, but also the broader financial service sector in Asia.
The MAS has shown a firm hand to those which do not meet its standards as well. It is among regulators that have shut the door on crypto exchange Binance, ordering its Binance.com site to stop providing payment services in Singapore.
Such regulations are primarily geared towards protection against money laundering and financing terrorism while maintaining a very crypto-friendly approach.
MAS managing director Ravi Menon had said in his speech at last year’s Singapore Fintech Festival that the authority is “carefully studying” the economic merits and implications of a retail centralised banking digital currency (CBDC) in the Singapore context.
He noted that a “digital Singapore dollar” could possibly foster an efficient and inclusive payment ecosystem which could make it easier for smaller firms to build new payments and related digital services.
He further described it as a digital version of cash, and added that “the case for a retail CBDC in Signapore is not urgent”.
Physical cash is not going anywhere, so the need for a digital Singapore dollar is “moot at this point,” he said.
Explaining further, he said that although a CBDC has benefits such as financial inclusion or expanding access to financial services, it’s “not compelling” in Singapore since a high proportion of Singaporeans have bank accounts, while electronic payments in the country are pervasive, highly efficient, and competitive.
Another reason for a digital Singapore dollar is to guard against the potential displacement of the local currency as privately issued stablecoins and foreign CBDCs enter the market and become widely accessible, Menon said. Stablecoins are digital assets that are pegged to traditional currencies.
That said, the central bank acknowledged that there are potential benefits, and will work with the private sector to develop technology and infrastructure needed to issue a Singapore dollar should the authorities decide to do so in future.
Crypto payments are still at the infancy stage
The cryptocurrency revolution has been gathering pace of late and looks set to shift into a new gear in Singapore after four firms were given the green light to provide digital payment token services.
This means it will soon be clearer to investors how they can trade in cryptocurrencies such as Bitcoin and Ether within regulatory guidelines and even pay for goods and services with such coins.
Louis Liu, founder and CEO of FOMO Pay — one of the companies that has been awarded the MAS license — noted that in other parts of the world, particularly in Japan and the US, more people have started to use digital tokens as a mode of payment.
He wanted to make sure that when these people come to Singapore, our merchants will be able to accept their mode of payment.
As one of the first Digital Payment Token (DPT) licensees to join the digital exchange, Fomo Pay will collaborate with DBS Digital Exchange (DDEx) to enable Singapore-based merchants to accept cryptocurrency payments from consumers.
The payment service will be similar to that for e-wallets or credit cards.
“For example, the merchant will key in the amount and Fomo Pay will convert it into the number of bitcoins, which will be sold in real time on our partner’s cryptocurrency platform. The merchant will receive the fiat currency, not bitcoins,” he explained.
He added that this process means merchants will not be subjected to the volatility in the value of cryptocurrency.
Generally, crypto payments are still in their infancy. However, they hold a great deal of potential for businesses to improve their services to customers.
Cryptocurrency payments also have the potential of creating a more borderless and globalised economy, as well as fighting financial inequality by bringing fast and secured financial services to people without access to a bank. This is a big win for everyone in online and offline payments.
What will it take for mass adoption to become a reality?
In recent years, cryptocurrency has become too big to ignore.
It certainly holds interesting potential and if successful, the market volatility of cryptocurrency will need to be drastically reduced and security will need to be improved.
After all, the transactional currency should be stable and efficient, of which both attributes are not associated with Bitcoin.
All in all, the growth of cryptocurrency is projected to be a long-term play, one that will require significant infrastructure investment to be ready for mass adoption.
Increased consumer awareness and a progressive regulatory framework will likely be crucial for cryptocurrency to become a bigger part of Singapore’s economy.
Research has pointed to institutional adoption as a turning point for widespread crypto adoption, and it would appear we’re quickly heading there.
Furthermore, the increased availability of points of sale that accept Bitcoin as a means of exchange and institutional investment in the space will likely lead to greater acceptance of Bitcoin as a method of payment in the future.
For now, we’re still very far from the reality in which crypto can be used to pay a restaurant bill. We’re simply not there yet, but it’s also not impossible for crypto to be used as a regular mode of payment.
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