El Salvador is still hitting headlines thanks to becoming the first country in the world that accepts Bitcoin as a legal tender. Media outlets are full of pictures of people really paying with BTC, even in McDonald’s!
Since data shows that only 50% of the Central American country’s population uses the Internet, other governments have been skeptical about this risky decision. However, to some extent, it’s reasonable. Before BTC adoption, El Salvador didn’t even have its own national currency. The American dollar was the only one official means of payment. The country is hoping to generate an influx of money into its financial system, so time will tell if this approach works.
But is El Salvador a harbinger of future changes? Are other countries going to be more willing to accept crypto after the first-mover? Let’s explore a particular use case – paying for coffee with Bitcoin to understand whether paying with crypto is just another front-page splash or a real possibility.
How to Buy Coffee With BTC? A Use Case
Let’s say you’re in a coffee shop and want to pay for it with crypto. What do you need to do it? Let’s take a step back to the BTC basics before diving deeper into this
Every new block writes into Bitcoin’s blockchain approximately once in 8.78 minutes. This is an average time to wait until the transaction gets confirmed by the network. By introducing this challenge, Satoshi Nakamoto strived to create scarcity in order to increase the value of the first cryptocurrency. Clearly, the merchant’s need is to exchange goods (a cup of coffee in this case) for a valid currency, and to do it quickly. Instant settlement is an ideal situation in this case because of the considerably high flow of orders, especially in the mornings. Customers don’t want to wait for 10 minutes near the counter to get their transaction processed. Furthermore, with such a slow pace of serving coffee, it would’ve been impossible to handle a line, and people would simply go away to get their coffee elsewhere.
A coffee shop may want to consider other cryptocurrencies with advanced capabilities, that have been created in recent years and addressed the drawbacks of Bitcoin. But what are the chances that the absolute majority of incoming coffee fans will have this crypto in their wallets?
So the coffee shop owner considers accepting payments with Bitcoin. A friend told him about another opportunity to handle BTC payments – by using Lightning Network that makes it possible to speed up the Bitcoin transactions.
One issue is solved, however, other ones are appearing on the way. Turns out, now a coffee shop needs to decide on a fair exchange rate to offer reasonable prices for its products and manage the company’s expenses. Another risk is that a spike in crypto activity will be noticed by regulators and considered a red flag that requires investigation.
After careful consideration, it appears that introducing Bitcoin as a payment option requires implementing a highly specific payment gateway.
Are regulations a showstopper?
The demand for physical cash is decreasing slowly but surely. In this light, the need for digital assets seems a valid response of a public sector to the emerging needs of restructuring the financial space. Instant crypto transactions might be supported by a blockchain’s liquidity and architecture, just like ACH supports deposit payments.
Yet, while the official financial world has to comply with regulations like capital requirements, which ensures that the network like ACH or Fedwire is commercially viable, cryptocurrencies are not regulated this way yet.
Truth is, legal crypto might not happen overnight. Regulators will also try to ensure that anti-money laundering measures are in place. For example, the money transfers should occur between recognizable digital wallets, and transactions above certain payment thresholds will be investigated. Most likely, they will also address the need for introducing the chargeback procedure and identity verification.
Crypto Payments – Any Solutions Available Now?
Our use case example with a coffee shop clearly shows that the technological implementation of payments with cryptocurrencies is still challenging for retail businesses because it requires a complicated and costly structure to maintain it. Direct crypto transactions may also raise red flags among regulators and put the business in danger.
Nevertheless, payments with crypto are made possible by converting crypto transactions into cash on the backend. When using this method, a merchant can accept payments in crypto and settle them in fiat currency.
Here’s how it works: a financial entity that is licensed to operate with both crypto and fiat, invoices the customer, runs the transaction through an exchange, and sends the cash equivalent of the invoiced amount to a bank account of the merchant.
The merchant may feel safe that crypto doesn’t go through their accounts if they are not licensed to accept it. Instead, it goes through an exchange, which is fully compliant with the applicable regulations, settling in the blockchain afterward. All this process happens within moments of time, so a crypto payment settles as easily as a regular credit/debit card payment. It happens automatically so neither the customer nor the merchant has to be crypto-savvy or handle the advanced technical side of the blockchain.
CEX.IO operates in 99% of countries of the world, including over 30 states of the U.S. We understand the need for regulations and actively cooperate with authorities to protect our users and partners. Crypto technology evolves every day but we still need to be aware of its inherent risks. It’s much safer for a merchant to delegate dealing with the crypto ins and outs to a professional service provider.
The hot debate around El Salvador’s case indicates the increased interest in crypto adoption around the world. In fact, about 80 countries are now at the stage of considering or pursuing the implementation of CBDC (central bank digital currencies).
To accept crypto as legal tender, all the industry players need a viable regulatory framework to protect customers and merchants. Introducing such regulations is a complex process that requires a lot of time to come to its fruition. Meanwhile, regulators like FinCEN and FCA offer guidelines and licensing of financial service providers. It is possible for retail businesses to partner up with the licensed crypto exchange that has developed turn-key payment gateway solutions.
Turns out, there are working solutions that make paying for coffee with Bitcoin a reality right now. However, these solutions are a result of intricate infrastructure and increased opportunities supplied by financial service providers like CEX.IO. By providing a range of services to individuals and businesses, we are contributing to the development of the markets and suggest working with crypto in a completely legal and hassle-free manner.