Cryptocurrencies and Commerce

It’s a mug’s game to try and predict the intra-day movements of something that can swing 20% one way or another within the time it takes to walk to the tube and buy the morning coffee - I have been nominated as Matter Of Form’s cryptocurrency expert. And in recent months we have been asked by a few clients what the impact will be of cryptocurrencies on commerce and e-commerce. It’s a genuinely fascinating and timely subject, and one which reveals me as a crypto ‘hawk’; sceptical that there can be a mass uptake of cryptocurrencies in commerce.

What is certainly true it that there are many reasons why something like bitcoin should be used as a payment method, and the list of positives is long. Most importantly a genuine crypto token, thanks to blockchain technology, is pretty much incorruptible and hence in a new league of security when compared to credit cards, for example. Moreover, in the transactional sense blockchain transactions are cheaper and faster – think of massively undercutting the 1-3% transaction charge the card companies charge retailers, or alternatively the days of delays in transferring money abroad and how that can be drastically reduced with cryptocurrencies. And finally, these transactions would also become much more transparent and (theoretically) more easy to regulate, making them the friends of governments trying to keep tabs on the global flows of capital.

And of course cryptocurrencies are being used in commerce and e-commerce already with companies like Microsoft, Virgin Galactic, Subway and online retailer Overstock.

Expedia have famously taken hotel bookings since 2014 using bitcoin.

However, I am left with the sense that these are on the whole marketing ploys to generate a little buzz and attention. Why? Because I doubt for a minute these companies would want to have anything more than a sliver of their income generated in cryptocurrencies, as fundamentally the violent upwards and downward swings in the value leave it impossible to predict what the worth will be of the transaction even 24 hours after the sale. Big companies do not survive through playing currency roulette.

So I can only see price stability and mass adoption if cryptocurrencies like bitcoin are approved and regulated by some supranational body respected by the USA, China, the EU, Russia, India and the like - then they would be backed by governmental legitimacy and there would presumably be some form of price stability. If you quickly look at what a currency represents you will see it is a medium of exchange because it is a genuine store of value. In the old days a currency used to be backed by a physical asset like gold. Then countries adopted fiat money, where the value is backed by the government that issued it and therefore by proxy the stability of its government and institutions, and the strength of its economy. So the value of the Swiss Franc is a lot higher and more stable than, say, the Argentine Peso. But since even the EU can’t agree amongst themselves, let alone Russia and the US, I see cooperation on this scale as unlikely.

Or perhaps in the opposite extreme bitcoin would be the global currency as the only option in a Hobbesian realisation of state failure and global anarchy. In this case I will be heading for the hills and I will not remotely be concerned whether my Amazon parcel is paid for via Apple Pay or bitcoin.

That is not to say cryptocurrencies won’t remain an important store of wealth for the world’s wealthy, after all as Niall Ferguson points out there are something like 36m millionaires in the world and the maximum number of bitcoins that can be created is just 21m. Only a tiny part of the $128.7 trillion of wealth they represent needs to go into a cryptocurrency for its value to continue to rise. But for the reasons of price stability I don’t see it is a medium of exchange in commerce or e-commerce any time soon.

So at Matter Of Form for now we will be looking elsewhere to help clients to move forward in commerce.

We are looking across the customer experience – from innovations in the in-store experience (both physical and digital) to improvements in the last mile - delivery and returns remains such an important facet of the online shopping experience. And on a personal note I have learned my lesson and will stay away from bitcoin trading, as I suspect will sensible companies who crave stable earnings.