In recent years, digital currencies have garnered significant attention. The perception of digital assets is evolving from mere forms of currency to versatile tools with various use cases gaining rapid adoption. 

Cryptocurrencies are most commonly associated with trading, given their volatile prices and notable success stories like Bitcoin. But can crypto break out of this niche and become a mainstream payment method?

Does Crypto Need to Prove Its Credentials? 

Bitcoin has demonstrated its potential as a medium of exchange (MoE) and is poised to become a trusted payment method. Historically, before any currency or commodity is adopted as an MoE, it must first be recognized as a store of value (SoV). Bitcoin has established itself as a SoV since 2009 due to its decentralised and secure nature. As the Bitcoin network grows, it will naturally evolve into an MoE. Integrating Bitcoin wallets into Apple and Android OS, along with products like Bitkey by Jack Dorsey's Block Inc., could revolutionise adoption and make Bitcoin mainstream globally. 

(Fig. 1 Concept of Adoption of Crypto into the Apple Ecosystem)

Key Barriers to Adoption

The multi-step exchange and withdrawal process necessary to use cryptocurrencies with regular merchants is a significant hurdle. Next-generation payment processors can bridge this gap by integrating cryptocurrencies with traditional networks, facilitating instant transactions. This requires cloud-native infrastructure and robust API connections to enable seamless crypto spending at point-of-sale and e-commerce checkouts. 

Alejandro del Rio, Regional Director of LatAm at Paymentology, supports this claim, stating: 

"Cryptocurrencies offer potential for cost-efficient cross-border transactions and access to stablecoins. However, they have not significantly disrupted daily payment routines due to the lack of fast, reliable links to traditional payment networks.”

(Fig. 2 Crypto used in POS Software)

Price Volatility and Regulatory Disparity

Cryptocurrencies like BTC and ETH face obstacles due to their volatility, limiting their utility for everyday transactions. Conversely, stablecoins are gaining attention from major payment providers like Visa and Mastercard.  

Cristiano Ventricelli, VP of Digital Economy at Moody’s Ratings, discusses the challenges of making cryptocurrencies popular payment methods, commenting, 

“Stablecoin adoption is hindered by regulatory uncertainty, occasional instability in maintaining their peg during market stress, and technology risks associated with public permissionless blockchains." 

In the Australian market, proactive exploration and regulation of cryptocurrencies have fostered a surge in usage and investment. However, the evolving regulatory environment creates uncertainties for consumers and businesses. A balanced approach is crucial to ensure stability and security while promoting innovation.

(Fig. 3 Volatility of Bitcoin, ETH & SPX 30d)

Addressing Challenges 

Key areas to address for widespread cryptocurrency adoption include user benefit, merchant demand, and tax implications. Users need an inherent benefit beyond traditional payment methods, and the challenge of exchanging fiat for crypto must be resolved. Merchant adoption requires significant user demand and seamless integration into point-of-sale systems. Additionally, transactions should not trigger taxable events, which is a barrier in markets with capital gains taxes. 

Simplifying the fiat-to-crypto exchange process and offering clear user benefits can drive consumer interest. Regulatory clarity on tax implications and incentives for merchants to integrate crypto can significantly enhance adoption and usability. 

The Importance of Trust

Scott Major, CCO of Transact365, emphasises trust as a barrier to mainstream adoption. 

"Trust and user experience are crucial for driving (cryptocurrency) adoption. However, cryptocurrency is not always deemed as an accessible or necessary payment method.”

Integrating traditional payment technologies can enhance trust and encourage frequent trading. Creating a seamless user experience similar to Apple Pay or Google Pay is vital. Australia has been a significant player in the cryptocurrency space, with growing adoption and progressive regulations that support innovation.

(Fig. 3 Number of Active Cryptocurrency Users 2016-2023)

(Fig. 4 Market share of cryptocurrency compared to other payment methods in selected countries across the world as of 2023)

Merchants Need to Embrace Crypto 

Cryptocurrency can still be optimised for accessibility, speed, security, and affordability. Removing fee-charging intermediaries and increasing regulatory scrutiny leaves speed and accessibility as remaining issues. While transactions may be instant, the pre-purchase process is often slower and more complex than traditional methods. Merchants need to fully embrace cryptocurrencies by integrating crypto-focused APIs and simplifying onboarding processes. 

Efficient user experiences, akin to those offered by traditional payment systems, are critical for consumer confidence and convenience. Enhanced merchant support and education on integrating crypto solutions can further drive widespread acceptance and use. 

Conclusions 

Despite the rising commerciality of cryptocurrencies, significant improvements in user experience, regulatory clarity, simplified processes, merchant acceptance, and consumer trust must be prioritised to allow digital currencies to transition from niche trading assets to widely accepted mainstream payment methods.