Paying your Ferrari with Crypto?

16 November 2023

 

Would You Like to Pay with Crypto?

The phrase "Would you like to pay with crypto?" may be gaining momentum in tomorrow’s digital landscape. In the early days of cryptocurrency, crypto-only events were a statement of ideological purity, signaling the end of fiat dominance. However, as the crypto ecosystem matures, users now have the flexibility to choose their preferred payment method. In this article, we delve into the development of crypto payments, assess the user experience, and ponder whether it surpasses traditional fiat transactions.

Crypto Payments are Making Headlines

Pay for your Lambo (a.k.a. Lamborghini), and your Ferrari and ride in style to go to the movies with your Bitcoin. Thankfully, this is all very possible these days. Luxury car manufacturers like Ferrari have recently joined the crypto revolution, enabling customers to purchase their dream vehicles with digital assets. Ferrari's decision was driven by market demand and a recognition of their clients' investments in cryptocurrencies. While Tesla briefly suspended Bitcoin payments in 2022 due to environmental concerns, recent data shows that nearly 60% of Bitcoin mining energy is sourced from renewables, allaying some of these apprehensions. With most leading cryptocurrencies shifting to Proof-of-Stake, energy consumption is further reduced, potentially opening the door for wider adoption by companies like Tesla.

Are the environmental concerns justified? Not really… at least, not anymore. Nearly 60% of all energy used for Bitcoin mining comes from renewable sources (CCAF, data as of July 2023). Besides Bitcoin, the majority of other leading cryptocurrencies are based on Proof-of-Stake hence significantly lower energy requirements. We expect that companies, including Tesla, will soon start accepting crypto on a larger scale.

BitPay, a leading crypto payment processor, sheds light on the growing trend of crypto transactions. Over the past six months, BitPay has facilitated more than 360,000 transactions, highlighting the increasing acceptance of digital assets across various industries.



Crypto Payments by Percentage and by Number of Transactions

Source: BitPay, Data as of October 2023. This should not be understood as investment advice for any particular digital asset.

Crypto Payments per Industry

Source: BitPay, Data as of October 2023.

How can crypto be spent?

Direct receipt of crypto entails the responsibility of managing private keys, a task many companies are ill-equipped to handle in-house. To bridge this gap, payment service providers convert crypto to fiat before transferring it to vendors. Although this ensures a smooth transaction process, it comes with minor costs, including conversion and service fees. Regulatory concerns in the US may explain why companies like Ferrari prefer this indirect approach. Users simply pay with their debit card (usually Visa or Mastercard) linked to their crypto wallet and the vendor never touches the cryptocurrency directly. This also opens up the possibility to pay with anything else, such as tokenized assets like real estate or even tokenized securities. In other words, you don’t need to own fiat to make payments.

Over the years, the user experience of crypto wallets and storage options has seen remarkable enhancements. A wider array of wallets, ranging from cloud-based to cold storage solutions, cater to varying user preferences. User-friendly applications like Trust, Metamask, and Coinbase have democratized access to crypto, transitioning from complex tools to seamless integrations with popular DApps.

Despite advancements, crypto payments represent a relatively small fraction of overall transactions. A substantial number of crypto enthusiasts opt to "hodl" their assets or engage in DeFi liquidity provision rather than using them for everyday purchases. According to Worldpay FIS, crypto's global P2B transaction volume in 2022 was over $11.6 billion, accounting for just 0.19% of global e-commerce volume. Only 18% of respondents in a survey indicated using crypto for goods and services, while 77% viewed it primarily as an investment.

As we navigate the evolving landscape of crypto payments, it's clear that there is significant room for growth. With improved user experiences, wider acceptance by industries, and a shift towards eco-friendly mining methods, crypto payments are poised to play a more substantial role in shaping the future of finance and commerce. The question, "Would you like to pay with crypto?" may soon become a commonplace inquiry, reflecting the growing prominence of digital assets in our everyday lives. It could also be that the choice of payment method will be entirely abstracted away and instead is replaced by a single card that offers “Pay-with-Anything” functionality where an algorithm chooses the most optimal route to pay for the product or service in real-time.

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