Blockchain's Achilles' Heel: CryptoPayment Barrier
Cryptocurrencies for Everyday Transactions Remains a Major Challenge for the Blockchain Industry
Blockchain industry players and investors alike have long touted the technology's potential to revolutionize the world by creating a more transparent (Perhaps not completely decentralized, fair (at a level of trustless & permissionless), and safe financial system. However, despite the hype, the industry faces a significant obstacle that it has yet to overcome: the difficulty of using cryptocurrencies for everyday payment transactions.
Source: Behavior Report – What Do Consumers Want from NFTs?
A recent report published by Dapp Radar, entitled "Behavior Report - What Do Consumers Want from NFTs," highlights this issue. Among the respondents, 52% identified the ability to purchase non-fungible tokens (NFTs) with a credit card as a preferred feature when buying NFTs. This convenience was found to be even more important to respondents than the actual perks and benefits of owning an NFT, which is an obvious answer (Value for Money).
The report's findings are unsurprising given the significant advancements made in the traditional financial sector over the past few decades. Credit cards, debit cards, and fintech solutions like PayPal, Stripe, Apple Pay, and Google Pay have made financial transactions increasingly more convenient for consumers. However, this level of convenience has yet to be fully realized in the blockchain industry.
For many, using cryptocurrencies for everyday transactions is an overly complex and difficult process. Even individuals working in the industry sometimes give up on services and applications at the payment stage. In countries with stricter regulations, such as Korea, the process is even more complicated. Establishing an account on a centralized cryptocurrency exchange and opening a bank account that is one-to-one matched with the exchange through a retail or internet bank is just the beginning. The deposited amount must be held for 24 hours and cannot be transacted during this time. For many, this process is too complex and time-consuming to be feasible (oh wait. . I forgot the KYC/AML process in between. . . )
Government regulation is perhaps the biggest obstacle. Payment finance is a licensed business, and only a tiny fraction of operators that meet the government's regulatory standards can obtain a license and operate. In Korea, the use of crypto for payments is a sensitive and conservative issue. The Financial Services Commission and the Financial Supervisory Service have approved only five Virtual Asset Service Providers (VASPs), or centralized cryptocurrency exchanges, for won transactions. Unfortunately, cases, where countries such as El Salvador and some African countries have recognized Bitcoin as legal tender, are only making these strict institutions more resistant to the idea. In my experience, Korean bureaucrats do not look to other financial systems outside of the US for reference.
Moreover, it is challenging to establish a global standard for alternative payment methods because the most commonly used methods vary from country to country. In Korea, credit card usage is more common, making the problem less severe. However, in neighboring Japan, cash payments are still prevalent. In Southeast Asia, fewer than 50% of the population has a bank account. Connecting these various payment methods with cryptocurrencies is a complex undertaking. While it is possible to expect Web 3 companies or projects that have received significant investments from the VC community to focus on these issues, the blockchain market is still in its nascent stage, so it is not realistic to have high expectations.
While the blockchain industry continues to hype the technology's potential, its difficulty of use for everyday transactions remains a significant barrier to its widespread adoption. Although solving payment issues is a challenging problem, it is also a fundamental one that must be addressed if the technology is to achieve its full potential and mass adoption.
