With the recent high-profile collapse of the crypto exchange FTX, the future is looking shaky for crypto enthusiasts.
FTX’s collapse represents the largest cryptocurrency failure to date. No one is absolutely sure what the fallout will look like. This clearly underscores a core problem in crypto payments: value is volatile.
Although blockchain technology does allow for greater transactional transparency, in practice, this utility leaves much to be desired and lacks necessary consumer safeguards. The thing that attracts investors is the exact same thing that would prevent widespread adoption.
Frankly, in the wake of this financial fiasco, it’s clear that the stability and security of cryptocurrency have a long way to go before financial institutions can commit to investing and dealing in digital assets.
The Trouble With Crypto Payments
Many merchants hesitate to accept payments in crypto because they can’t know if the value will double — or be cut in half — a week from now. By the same token, consumers don’t want to make crypto payments because there’s no infrastructure in place to protect them from fraud. For instance, if somebody convinces them to make a big purchase using Bitcoin, then disappears… that’s too bad.
It’s a bit of a catch-22. Crypto evangelists need regulation and institutions to stabilize prices and see widespread adoption as a currency. However, the lack of those things is what attracts all of the people who love cryptocurrency for ideological reasons. So, what’s to be done?
Unless proponents can square the circle, cryptocurrency won’t see widespread adoption as a currency. Instead, it will remain a speculative asset.
Consumer Confidence is Essential
The Federal Exchange Commission makes no bones about its cryptocurrency concerns. Cryptocurrency payments are non-reversible, and there is absolutely no centralized party or authority. Once a consumer pays with crypto, they can only get their money back if the receiver chooses to send it back.
To illustrate why this is problematic, customers that invested in FTX may never recover their assets due to the lack of post-transaction protections in cryptocurrency. Naturally, in response, many have filed lawsuits against the company to force the issue through civil litigation. However, again, there are no guarantees that any of these investors (many are celebrities and public figures) will recuperate their funds.
Arguments could be made that this is a reason for consumers to do their due diligence when researching a merchant with whom they’re looking to transact. However, it’s important to remember that fraudsters are sly. They can falsify Google reviews, craft fake customer testimonials, and even make dummy sites to pose as legitimate merchants.
Although I understand and empathize with enthusiasts who appreciate the anonymity and confidentiality of cryptocurrency payments, it won’t be widely accepted or traded until consumer protections are standardized. In order for a payment method to scale and grow, the buyer needs to have some level of security and consumer protection.
Regulation is Legitimacy
It is very likely that the recent FTX bankruptcy, and its pending lawsuits and criminal investigations, will give government regulators a reason to tighten rules around crypto companies. Therefore, stronger protections and centralized full control from appropriate government agencies are on the horizon. After all, payment security must be achieved before the general public and financial institutions begin to see crypto payments as a legitimate exchange method.
Ultimately, broader change is needed throughout the industry to secure crypto payments. I believe that change is inevitable, whether everyone is eager for it or not.
In the meantime, merchants that accept crypto should consider refining their return policies to keep ahead of the curve. Otherwise, crypto payments may prove to be a losing venture.
