Paul Razgaitis

Crypto Payments in 2022

March 14, 2022

I’m disappointed. It’s 2022 and I can only find two places to (legally) spend my crypto - an NFT or a Tesla belt buckle.

As much as it pained me to use dogecoin, I bought the belt buckle. For science.

2021 was the year that NFTs took off. OpenSea did over $15B in transaction volume in 2021, and countless other NFT marketplaces sprung up in the wake of all the new demand.

What about physical goods though? We were promised a techno-future where commerce happens frictionlessly and value is exchanged freely online. So why haven’t crypto payments started to eat Visa & Mastercard’s lunch?

There are two main reasons we haven’t seen crypto starting to replace credit cards: lack of incentives for merchants, and lack of incentives for customers.

The rough spots

Let’s start with the merchant side. Merchants have an incentive to add support for payment methods that people like to use. Crypto isn’t quite mainstream yet. The reality is that there just aren’t that many people who have crypto wallets yet. PayPal has upwards of 400m monthly users. MetaMask, the most popular Ethereum wallet, claims to have 21 million users. Coinbase has 73m users, but only 6 million of those transact in any given month. Adding the ability to check out with crypto likely won’t move the needle on sales today.

Next up is the uncertainty about accounting and taxes. Do you want to keep Ethereum on the balance sheet? If so, you’ll need to account for price volatility. Let’s say you make a sale and earn 1 ETH when ETH trades at $3000 USD. If you hold onto that ETH and the price goes up to $4000 USD, you’ve got $1000 USD of capital gains and Uncle Sam wants his cut.

What about buyers?

First, the obvious points of friction. Shoppers don’t want to trade a speculative coin that could go to the moon tomorrow for a depreciating asset. This is a problem with both digital and physical assets. You’ve probably heard of the guy who spent $1.3B worth of bitcoin on a couple of pizzas in 2010.

The bitcoin pizza story is an egregious (and quite overused) example, but there are more subtle reasons too. Look at this big disclaimer on, a travel booking site. travala refund policy

This adds friction to the booking process. What happens if you cancel your trip? The refund process is not really clear or consistent.

And what about chargebacks? They’re a notorious thorn in the side for merchants, but they do give the buyer some protection. Got charged for something that didn’t show up in the mail? Call Chase and they’ll take it off your statement. If you paid with crypto, you’re outta luck.

In the US, using crypto to buy something counts as a taxable event for the buyer as well. If you buy a TV with crypto, you technically need to report the capital gains on the currency that you used if it went up in value from the day you acquired it.

Lastly, it’s still too confusing. To buy the Tesla belt buckle, first I have to figure out where to buy dogecoin. I see that there is a dogecoin wallet in the App Store, but it won’t let me exchange my dollars for coins. I also have to make sure the wallet allows me to send it somewhere. Coinbase does the trick, but Robinhood does not — I can buy coins, but I can’t send them anywhere.

The same is true when buying NFTs - I need to buy ETH somewhere (and pay a fee), then send it to a compatible wallet (another fee), and then mint the NFT (more fees). Whew.

It’s not all bad though - let’s look at some of the benefits.

Why it might just work

Some of the downsides with crypto also happen to be benefits.

Merchants love the fact that there are no chargebacks. Sure, the buyer doesn’t get any protection, but there are other ways to get around this problem. Higher value transactions can use an escrow service. For lower value transactions buyers might have to take a risk and hope that the merchant values their reputation enough to consistently deliver the product.

Reviews can work in our favor here. The nice part about a blockchain is that it’s public and anyone can read it. We can verify that a review is legit because we can see that this person actually bought the thing that they’re reviewing.

Has this worked in the past? Reviews worked great for Airbnb, but not as well for Amazon. It’s well known that most Amazon reviews are bullshit.

Reputation works both ways here. Merchants can easily tell who their best customers are, because the purchase history is all on-chain. You can also do some cool things with digital rewards here too. Maybe you bought concert tickets and some band merch with Solana. The band can give out backstage passes to fans who have been to more than 10 shows. You can prove that you’ve been at each show - the receipts are all on-chain.

Let’s talk about fees.

It usually costs the merchant about 3% to run a credit card transaction. Most payment processors will slap on another 1% for foreign exchange if you want to charge the buyer in their local currency. There are a lot of players involved in this process, and everyone charges a toll. It gets even worse when you layer on platforms like the Apple and Google App stores, who both charge a whopping 30% fee for digital goods purchases.

Crypto flips this on its head! For crypto purchases, the buyer pays the transaction fee. Sure, we won’t use the Ethereum mainnet where transaction fees are about $46 today. Other chains like Solana, Bitcoin Lightning, Avalanche, or Polygon (an Ethereum L2) offer instant transactions for fractions of a penny.

And what about those taxes? Stablecoins could be an answer here. These won’t change in value relative to the dollar, so there shouldn’t be any capital gains to worry about.

Ok, maybe I’m convinced. How will it play out?

There are a few crucial dominos that need to fall if any of this has a chance of happening.

First, crypto adoption needs to continue (and it will). There needs to be a critical mass of users with a wallet on their phone or web browser so that merchants can’t ignore this new payment method.

Whatever you think about NFTs, they’ve been fantastic user acquisition channel for crypto in general. This trend will also continue, despite the mind-boggling prices for pictures of monkeys. Humans are irrational, and gambling is rooted deep in our psyche.

Next, we need a clear winner in the crypto wallet space. We’re seeing new wallets pop up almost daily, but the winner has not been built yet.

The wallet that onboards the next 100 million users will not be an Ethereum Wallet. It won’t be a Solana Wallet.

Instead, it will have have multi-chain support. It will have a fiat on-ramp built directly into the wallet. It will have a “checking” account of stablecoins that are staked for you automatically and are ready to be spent. It will have a universal QR code for sending and receiving transactions between friends.

It won’t have any warning messages that say…

⚠️Make sure you’re sending the right coin or your funds will be lost forever!⚠️

Coinbase Wallet has a decent chance at the throne. They have the engineering chops, a lot of users, and very deep pockets. They also have multi-chain support already.

Keep an eye on, the leading Solana Wallet. The team just raised a big round, and is looking to add ETH support.

Finally, we need to build better tools for merchants. In the late 90’s was revolutionary - finally you could do online payments! Today, seems antiquated next to players like Stripe.

If you run a Shopify store today, you would never even consider integrating directly with Visa and the card issuing banks like Chase and Capital One. No, you’d use a payment processor like Stripe or Adyen. It’ll be the same way with the blockchain and smart contracts. The difference this time is that you’ll connect to a global, permissionless network instead of a complex web of intermediaries.

We already have projects like Solana Pay, which allows merchants to accept payments without ever needing to think about a blockchain. It’s just as fast as credit cards, its cheaper, and it has way better security.

Alright, but who cares?

In 1998, Economist Paul Krugman famously declared, “By 2005, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.

Nobody on the planet envisioned how much our lives would change after a few decades of the internet. Hardly anyone could even imagine a world in which we have companies like Amazon and Airbnb, because so many things needed to happen before it was possible to accomplish what they did.

We’re in the same phase with crypto now.

I was at a pub the other night with a friend who was visiting from Canada. We were playing bar games and I lost a couple of rounds. As I went to send him his winnings, I again found myself doing mental gymnastics. How the heck am I supposed to pay him? I can’t use Venmo, they don’t have that in Canada. I could use PayPal, but then I have to pay a 5% fee!

I can send a tweet to millions of people around the globe in milliseconds. And yet, I can’t pay the guy standing next to me in a pub because of some arbitrary nation-state boundary.

Fortunately (for him), we both had the Phantom Wallet app and some Solana changed hands that night.

The future is already here, it’s just not evenly distributed. Let’s keep building! 🚀

Thanks to Bitcoin Blaize, Austin, and Stan for reading drafts of this piece.

Hi, I'm Paul Razgaitis! I am a software engineer in Chicago. I like making things and teaching others to do the same. Sometimes it's with code, other times with wood and a saw, and sometimes it's hot sauce. 🌶 Here are my tweets!

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