Cryptocurrencies making slow inroads into payment system

- By Collaborative Media & Publishing
Australian shoppers looking for some coffee can buy a kilogram of beans from Australian online retailer Bay Beans for 0.001 Bitcoin.
And if they’re after electronic equipment, Another World Computer Centre in Coburg in Melbourne will also take Bitcoin.
These two businesses are among a handful of Australian businesses which accept cryptocurrencies. And while their number has increased, the reality is the vast majority of Australian shops, restaurants and online retailers still want Australian dollars or another fiat currency.
Still, the ways to pay with cryptocurrencies are increasing.
In February, Mastercard said it would this year start supporting select cryptocurrencies directly on its network.
This will create a lot more possibilities for shoppers and merchants, allowing them to transact in an entirely new form of payment. “This change may open merchants up to new customers who are already flocking to digital assets, and help sellers build loyalty with existing customers who want this additional option,” the global credit card company said on its website.
In Australia the credit card company is partnering with cryptocurrency service provider CoinJar to offer cryptocurrency purchase and exchange services. Rather than directly transferring cryptocurrencies to a merchant, cardholders will now be able to instantly convert their cryptocurrencies into traditional fiat currency, according to a Mastercard media release.
Crypto payments are particularly well suited to large international payments and would be useful in parts of the world where the payment system isn’t as efficient or advanced as Australia’s, says Chris Berg, co-director of RMIT Blockchain Innovation Hub.
Another benefit would be in using the blockchain infrastructure associated with cryptocurrencies to have payments included in smart contracts.
Transactions can be expensive
But Berg says domestic cryptocurrency transfers can be too expensive to make them worthwhile for smaller payments.
While there are many thousands of different cryptocurrencies, Bitcoin and Ethereum are the most popular industry standards.
Bitcoin is the largest cryptocurrency by total value and Ethereum the second largest. They share many similarities – they are both decentralised, run on blockchain and owners store them in cryptocurrency wallets.
Bitcoin is primarily designed to be an alternative to traditional currencies and hence a medium of exchange and store of value. Ethereum is a programmable blockchain that finds application in numerous areas, including smart contracts and non-fungible tokens.
Ethereum comes with its own programming language that runs on a blockchain, enabling developers to build and run distributed applications. This means that transactions on the Ethereum network may contain executable code, while data affixed to Bitcoin network transactions are generally only for keeping notes.
Transactions of cryptocurrencies are stored on a limited number of blockchains, and demand often outstrips demand. This can result in space on the blockchains being auctioned off, pushing up the transaction costs. The crypto sector is concerned about the limitation and is searching for a solution.
But a factor holding back crypto payments in Australia is the lack of a widely accepted Australian denominated stablecoin.
“Most people don't want to make day-to-day payments in a wildly fluctuating currency, like Bitcoin or Ethereum or something like that. They want to make payments in a stable currency and ideally a dollar denominated currency,” Berg says.
In fact, the value of Bitcoin has fallen by 55 per cent this year in Australian dollar terms as it has plunged from over $65,000 to less than $30,000. Ethereum has fallen by 68 per cent.
Stablecoins are cryptocurrencies where the value is pegged, or tied, to that of another currency, commodity or financial instrument. Some are backed by real assets.
ANZ bank issues stablecoins
In May, US-dollar stablecoin terraUSD, which isn’t tied to a real asset, crashed and its value slumped to 3c as investors bailed.
Berg doesn’t expect this to be a major setback to the use of crypto, but said it is driving a shift to stablecoins which are backed by real assets, such as fiat currency.
In March ANZ bank announced that it had minted $30 million worth of stablecoins tied to the Australian dollar.
“An ANZ-issued Australian dollar stablecoin is a first and important step in enabling our customers to find a safe and secure gateway to the digital economy,” said ANZ Banking Services Lead Nigel Dobson in an ANZ media release.
There are two different ways companies can accept crypto payments, Big Four consultancy Deloitte notes in its report, Corporates using crypto, conducting business with digital assets.
Some companies use crypto just to facilitate payments and don’t hold cryptocurrencies on their balance sheets. One avenue to facilitate payments is to simply convert in and out of crypto to fiat currency to receive or make payments without actually touching it. In other words, the company is taking a “hands-off” approach that keeps crypto off the books.
Others will want to use a third-party vendor or custodian to maintain custody of the crypto on a blockchain and provide wallet management services, while a minority will actually manage their own crypto assets.
However, not everyone is convinced that cryptocurrencies should be a widespread payment mechanism.
In a report released in June, the Bank of International Settlements said it was concerned that the more people who used cryptocurrencies, the more congested the network becomes.
“Structural flaws make the crypto universe unsuitable as the basis for a monetary system: it lacks a stable nominal anchor, while limits to its scalability result in fragmentation,” BIS wrote in its The Future Monetary System Report. “Contrary to the decentralisation narrative, crypto often relies on unregulated intermediaries that pose financial risks.”

Published by BPAY Pty Ltd (ABN 69 079 137 518) email: The BPAY Scheme is managed by BPAY Pty Limited.  When you use BPAY payment products, the BPAY Scheme is paid fees relating to processing costs and BPAY Scheme membership.  Contact your financial institution to see if it offers BPAY payment products and to get the Product Disclosure Statement.  Any financial product advice provided by BPAY Pty Limited in relation to BPAY payment products is general advice only and has been prepared without taking into account your objectives, financial situation or needs.  Before acting on such advice, you should review the Product Disclosure.

Subscribe to the newsletter

Stay up-to-date about the changes in the dynamic payments industry, both in Australia and overseas.

Success! Thank you for subscribing.