Crypto Trends: 6 Factors Driving the Growth of Blockchain Payments

The word "Pay" overlaid over a mobile phone and 1s and 0s

To date, most cryptocurrency owners have seen crypto primarily as an investment vehicle, not a payment method. That’s changing, though, as more consumers look to pay with cryptocurrencies for their retail purchases. There are several crypto trends underlying this shift, and we’ll see them accelerate in the coming years, making blockchain payments a significant factor in retailing.

Why will crypto become increasingly desirable as a payment method for everyday purchases? Here are six factors that are contributing to the rise in cryptocurrency payments:

1. Dissatisfaction with traditional online payment methods

For a new consumer payments method to gain traction, large numbers of shoppers have to be unhappy with the existing order. When it comes to digital payments, we’ve got that in spades. The biggest focus of consumer discontent is leading digital-payments processor PayPal.

PayPal is by many accounts the world’s most hated corporation. The high fees, lack of refund support, and spotty customer service have long sent consumers in search of alternative payment methods. But it’s PayPal’s habit of terminating or freezing accounts at random and without explanation that tears it for entrepreneurs.

Fast-growing startups that see a revenue spike often find their PayPal accounts frozen, impacting their cash flow and ability to operate. This happened in September 2022, when pentesting tool company Flipper Devices had $1.3 million in revenue locked for 180 days by PayPal, despite the startup’s compliance with all the payment giant’s requests for documentation. All of these problems leave both consumers and merchants longing for a better way, enhancing interest in crypto payments as an alternative.

2. Growth of crypto payment solutions marketed as PayPal alternatives

‍The desire for better consumer payment options than PayPal has opened the door for blockchain payments to gain a foothold. Already, Coingate and Coinbase Commerce are popping up when consumers ask about the best PayPal alternative. Startup UTrust is catching buzz for its approach, which locks the value of the cryptocurrency used into fiat currency during a transaction.

As crypto solutions are aggressively marketed as a PayPal alternative to dissatisfied consumers, more shoppers become aware that they could use their crypto wallet to pay for store purchases. (In a bid to stay competitive with emerging crypto-payment options, PayPal started accepting cryptocurrency in mid-2022.)‍

3. As more consumers own cryptocurrency, more retailers accept it for payments

‍For cryptocurrency payments to increase, consumers first have to be familiar with them. On that front, knowledge has exploded.

In 2015, a Pew Research study found less than half of Americans (48%) had even heard of top cryptocurrency Bitcoin (BTC), and only 1% had owned it. In 2021, Pew’s follow-up survey found 86% of respondents had heard of Bitcoin, and 16% had owned it.

Retailers are responding rapidly to growing consumer interest in using cryptocurrency payments for their purchases. Already, the list of companies that accept cryptocurrency has mushroomed: 85% of major retailers accept cryptocurrency payments, PYMNTS found in June 2022. Smaller merchants lagged behind, with just 23% accepting cryptocurrency payments. Some 70% of merchants said they plan to take additional steps to enable cryptocurrency payments in the next two years.

Their urgency is understandable: A PYMNTS/Bitpay survey found that nearly one-third of crypto owners would consider switching merchants if they could pay with cryptocurrency. That high level of consumer interest has retailers scrambling to make sure they keep their crypto-loving customers.

Another factor driving increased consumer awareness of crypto: it’s starting to be offered as an investment option in retirement plans. Many consumers who don’t own a digital wallet are discovering they can invest in crypto within their 401(k) plan or other retirement account.

The trend is becoming increasingly mainstream. For instance, financial-services Fidelity Investments announced in April 2022 that its 401(k) holders can invest up to 20% of their account balance in cryptocurrency, assuming their plan’s sponsor approves the option.

4. New solutions solve the onramp/offramp problem

‍One barrier that’s prevented greater adoption of crypto payments is the challenge of getting cryptocurrency converted into fiat currency during the process of making a retail payment. Retailers want reassurance that a shopper is truly paying an item’s price, so they’re nervous about accepting payment in rapidly fluctuating cryptocurrencies. For their part, shoppers paying in a cryptocurrency might want any refunds to be returned to them in the same cryptocurrency.

A growing array of crypto-backed debit and credit cards take care of this onramp/offramp problem. (The cards even let you earn rewards in crypto.)

With a crypto card transaction, your savings are held in your designated cryptocurrency, but you can use the resource to pay in dollars, thereby reassuring the retailer that they’re getting the amount requested. The card provider does the heavy lifting of exchanging between crypto and fiat currency for you.

Crypto-based credit and debit cards haven’t seen wide adoption yet–The PYMNTS/BitPay survey found just 2% of respondents’ crypto purchases were executed with a card. But we expect their ease of use to spur wider adoption soon.

5. Stablecoins build crypto’s credibility for retail payments

‍Consumers have their own worries about using wildly fluctuating cryptocurrency to make a short-term, small payment. The rise of stablecoins is doing much to assuage these fears.

Where most cryptocurrencies are famously untethered from traditional currency, stablecoins such as Tether (USDT) and USD Coin (USDC) have values that are tied to the U.S. dollar. That keeps the coins’ value fairly stable at around $1 in value.

This type of crypto is seeing rapid acceptance: The supply of stablecoins has soared from roughly $85 billion in 2021 to $180 billion in 2022, TechCrunch reported. Stablecoins take some of the uncertainty out of retail transactions, and the growth of such coins will likely encourage more retail purchasing via crypto payments.

6. New solutions mean faster crypto payments

‍One of the biggest complaints of cryptocurrency critics is that transactions often move with frustrating slowness compared to, say, using a traditional dollar-backed credit card. It’s a particular disadvantage in terms of paying in person at a brick-and-mortar retail store. Nobody wants to be standing at a counter holding up a line of shoppers, while they wait for their crypto payment to finalize.

Fortunately, the industry is painfully aware of the problem, and hard at work on speeding up crypto payments. Cryptocurrencies with faster processing times are gaining an edge in the market, and customers who want to use crypto for their retail shopping needs will likely gravitate to these offerings.

All signs point to blockbuster growth in crypto payments

‍For all these reasons and more, crypto payments are forecast to explode in the coming years. A new report from Allied Market Research forecasts that the global market for payments in Bitcoin (BTC) alone will top $3.7 billion by 2031, a compound annual growth rate of over 16%.

Besides the factors detailed above, the report points to accelerating adoption of crypto payments in emerging economies and traditional banks’ desire to get a piece of the crypto action as drivers of increased crypto payment usage. It’s expected that e-commerce payments will outstrip the overall growth rate to expand over 20% in the same timeframe, as more consumers become comfortable with using crypto in their everyday lives.

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