Bitcoin, diem, ethereum, e-euro: digital currencies are currently dominating the headlines more than their physical counterpart, cash. Will they soon dominate the trade as well? No. Nevertheless, e-commerce must not ignore them.
Cryptocurrencies as a means of payment? Traders in Germany have it easy: the currency is the euro. parallel currencies there is not to any significant extent. In an economically stable country with a strong currency, there is no need for it. The acceptance of other currencies would only burden retailers, because payments outside of the euro require foreign currency accounts and are entered Exchange rate and cost risk. VAT must be paid in euros, and most suppliers only deliver in local currency.
Cryptocurrencies as a means of payment: Opportunities and risks
It is precisely these aspects that make it difficult to use other currencies. Despite all the enthusiasm for the technical concept of bitcoins, it is often forgotten that it is not just about one additional payment method for the online checkout acts. Cryptocurrency payments must be converted into euro book money just like bills and coins in brick-and-mortar retail – as long as there isn’t one parallel network of bitcoin acceptance points consists.
And retailers would do well to make this exchange quickly. Because the Bitcoin is characterized by a high volatility. No serious entrepreneur would put his earnings at risk of being worth 20 percent less next week, even when they could be worth more. This is where other concepts come in that are closer to the existing currencies. Most important in our economic area are the ECB’s deliberations on creating a digital twin, the e-euro. Innovations such as Bitcoin or Diem, Facebook’s digital currency project, have forced central banks around the world to act.
E-Euro linked to existing currencies
The advantages of these digital central bank currencies are seen as disadvantages by die-hard crypto disciples, but the reality speaks for itself: the coupling to existing currencies – and their regulations – ensure trust and facilitate acceptance. The e-euro, which can be exchanged 1:1 for central bank currency at any time, offers no basis for speculation and is backed by all the trust that the analogue euro also enjoys. From a practical point of view, the digital currency is stored in wallets, i.e. in apps that are specially designed for payment exchange. How they communicate with each other and how the amount to be paid is transferred depends heavily on the construction and distribution of the digital version. The ECB has already indicated that it has no intention of bypassing the commercial banks and delivering the e-euro directly to consumers, although this would be possible. She certainly doesn’t want to establish and maintain direct contact with hundreds of millions of customers.
If the creation of money were no longer done by the commercial banks – already a revolution – they would at least be involved in the storage. Thus, the wallet for the digital euro would be little more than a banking app, which practically every bank already offers today. Customers should not underestimate one advantage of this division of tasks: the bank account as a backup protects against the fate of numerous crypto owners. The value of bitcoins stored in wallets with forgotten access data is estimated at around 115 billion euros.
With the participation of the banks in the introduction of cryptocurrencies as a means of payment, another aspect that is important for retailers and customers could be solved: the role of the mediator in disagreements. The ideal case is a transaction with perfect delivery and a happy customer. Practice shows: Reversals and disputes are a relevant factor. A wallet-to-wallet digital currency transaction transfers the equivalent value instantly. A payment guarantee for the trade is not necessary, as the means of payment is transferred and booked directly. Good for the shop, bad for the customer: in the event of a complaint or non-delivery, he is dependent on the goodwill of the retailer.
In order to establish a balance on both sides, an intermediary is required who can evaluate and execute a reverse transaction, as is already possible today with the credit card with the chargeback. If the money can be transferred directly in the age of digital currencies, services such as account backup or arbitration in the event of conflicts represent new business areas for banks, but also for FinTechs.
New areas of application for cryptocurrencies as a means of payment
Thinking further, the possibilities of digital money open up completely new areas of application: since a digital euro can be programmed, it can be ideally linked to digital business models. These include, for example, smart contracts, which come into force automatically depending on certain parameters and also automatically trigger money transfers. Consumption-dependent payments – a sample application in the Internet of Things – can be ideally mirrored with a digital means of payment.
The digital euro will come and it will be relevant for trade. But it’s coming slowly: Top representatives of the ECB have let it be known that initially a limit of 3,000 euros per capita would be conceivable. If we assume that money laundering and KYC checks will also become mandatory for the digital account, larger fraud scenarios are still easiest to avoid with small amounts.
It’s an unfamiliar feeling when a future transaction could fail, not because the sender has too little money, but because the recipient has too much money. But maybe a good start, because despite all the enthusiasm for cryptocurrencies as an asset, digital money first has to prove its suitability for everyday use.
The author Ralf Gladis is co-founder and managing director of the international payment service provider Computop – the payment people.
Also read: Bitcoin as a means of payment: Cryptocurrencies as an opportunity for online trading