The initial design of bitcoin was to be a payment method, a unit of currency. Along the way in the decade-plus since its creation by the anonymous creator/creators known as Satoshi Nakamoto, it evolved to become something quite different: something that people buy and trade because they want to make money on it.
As they spiral up and down, the volatility of cryptos seems to herald regulations aimed at putting new guardrails in place, increasing scrutiny on the exchanges and the traders themselves.
This summer, for example, SEC chairman Gary Gensler said, “We just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West.”
Rushing to judgment will benefit no one, he said, noting that just a few decades ago, there was a time when Congress was debating whether payments and eCommerce should be allowed on the internet.
He said it’s just a matter of time before we get to a tipping point, where regulations and merchant acceptance converge to bring bitcoin (and its brethren) toward mainstream use cases in commerce.
To Spend or Speculate
The current speculation, he said, is a derivative of that expectation, which is the mindset that at some point (near term), bitcoin will be a store of value. Of course, people want to make money off the profits they generate from their holdings.
As he told Webster, “ultimately at the end of the day, if people do not derive some kind of real value out of these cryptos, then it’s just a bunch of speculative trading — and that’s not really sustainable.”
As he noted, if bitcoin or another holding is meant to be a store of value, and it can be transferred, then why not use it for payments? There’s no real tangible benefit to be gleaned from selling an asset that has value, moving it to an exchange, selling it and depositing the funds in the bank. He noted that as bitcoin has evolved over the past 10 years, BitPay has also seen hyper-growth. A decade ago, the company logged five to 10 transactions a day — and now the company is forging a new ecosystem.
“We eliminate all that,” he said of the stutter step in crypto transactions that involve fiat conversions and a range of transaction costs. With BitPay, cryptos can be directly exchanged for other assets of value — “it could be another token; it could be dollars or it could also be a car or a house or whatever else you might want to purchase,” he said, adding that “the platform we’re building is to enable cryptocurrency to be used for payments, done through a different rail.”
Buyer Be Bare
That rail, he contended, will help foster and facilitate merchant acceptance of crypto. The days are coming, said Pair, when merchants (a significant percentage of them) will want to take payments in crypto mainly because they won’t want to grapple with chargebacks or fraud or any of the risks that are inherent in traditional methods of payments.
He acknowledged that there are no traditional protections in place for bitcoin (or other crypto transactions), where a bank can reverse a charge — and liability rests ultimately with those who initiate transactions themselves. But, he added, the irreversible nature of the transactions, the trust in the crypto ecosystem itself (and its anonymity) is what exists as an essential foundational property for the crypto economy at large.
“You can add back layers that give some buyer protection, some recourse, some dispute mediation in the middle of all this. But you need that foundational layer first,” he said. Education is a necessity, he said, as some users will determine that bitcoin is not right for them (perhaps they will choose central bank digital currency (CBDC) instead, he told Webster).
As for augmenting consumer protections, he said BitPay intends to create a marketplace that creates consumer protection for anybody buying from one of the platform’s merchants.
“The merchant could opt in to a program where we would give certain consumer protections in the transaction,” said Pair. “And we would offer a dispute mediation type of service in that transaction.” Firms that offer dispute mediation can “plug and ” into the marketplace to offer their services.
Dollars and Ascent
Looking ahead, with a nod toward the emergence of non-fungible tokens (NFTs) and other digital offerings, he said, blockchains are evolving to the point where rights are being bought and sold — the right, for example, to watch a movie on a Microsoft or Apple platform (or both). That can open up a range of new uses that have yet to be imagined.
The regulators and the lawmakers have to let the private markets help move cryptos beyond cryptos into real-world transactions. The commerce use cases for bitcoin are gaining traction, too, as PayPal will bring crypto payments to its tens of millions of merchants in the next several months. PYMNTS/BitPay’s own research has shown that 18 percent of consumers — 46 million individuals — are likely to make a purchase using cryptos.
With that type of groundswell, with that type of pent-up demand, it’s better for regulators to observe, he said, and see how people use cryptos — and where the problems lie. “Give it a little time and be patient,” he said.
Is it play or plan?