Cryptocurrency processing: pros, cons and pitfalls

What is crypto payment processing?

Processing is the activity of processing payments.
Thanks to processing services, you can pay for purchases with bank cards or electronic money. Processing services were first offered by Visa in 1977. Two years later, MasterCard introduced a similar system.

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Processing payments in cryptocurrency is called crypto processing. The first cryptocurrency processor appeared in 2011, when BitPay developed a solution for merchants who want to accept bitcoin for payment. At the moment, there are dozens of crypto processors whose services are already used by large companies such as Microsoft, KFC Canada, Shopify and Dell.

Problems of cryptocurrency payments

Volatility

Due to the volatility of the cryptocurrency, it is almost impossible to sell and buy bitcoin at the same price. By accepting payment in digital assets, the seller risks receiving a smaller amount than he intended. The buyer is unlikely to willingly part with the cryptocurrency, which can noticeably increase in price in a couple of days.

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Scalability

A two-year-old dispute over how to scale bitcoin led to many forks of the first cryptocurrency, but the problem of scalability has not yet been resolved.

The speed of cryptocurrency systems lags behind their fiat counterparts. The bitcoin network processes 4-5 transactions per second. The throughput of the Ethereum network is up to 30 transactions per second. The Ripple system allows processing up to 1,500 transactions per second, and EOS – up to 4,000. At the same time, Visa can process up to 24,000 transactions at the same time.

Commissions

If the seller wants to sell goods for cryptocurrency, but receive fiat money on his account, the commissions will be paid several times: first, the buyer will pay a commission to the miners, then the seller will pay a commission for sending the cryptocurrency to the exchange service, and then this service will take a percentage for converting cryptocurrency to fiat.

Regulation

Cryptocurrency is not legal tender in most jurisdictions, so accepting such digital assets for payment is accompanied by legal difficulties for the seller. Difficulties also arise when paying taxes on income or profits that were received in cryptocurrency.

There are two models of crypto processing: “crypto-fiat”, when the seller receives fiat money to a bank account as a result of conversion, and “crypto-crypto”, when he receives cryptocurrency. At the same time, regardless of the number of digital assets accepted for payment, the seller can receive payment in one specific crypto asset, including stablecoins.

There are problems not only on the side of processors. Sellers do not fully understand how and why they use the crypto-processing service, and believe that in order to successfully receive bitcoin, it will be enough just to open a wallet.

For contractors and vendors, creating their own crypto processor is an unjustified waste of effort and money. So that such a task does not compete for resources with the main business processes, you can integrate a ready-made solution from a supplier who will take over the development of the service, adding new cryptocurrencies and user support. At the same time, fiat money, not cryptocurrency, remains the main payment method for stores and contractors.

According to Artur Azizov, one of the problems of traditional payment processors is charge backs. Usually buyers request a refund because they are not happy with their purchase, but sometimes such a refund can be part of a fraudulent scheme. In all cases, sellers suffer financial losses. In the case of crypto payments, processors have no way to return funds to the buyer.