Cryptocurrency’s seduction of global fashion companies shows no sign of slowing down. Baiting the fashion industry, those hungry for change have started to embrace this monetary trend by accepting payment in Bitcoin, Ethereum, Dogecoin, and other digital currencies.
In 2021, a PYMNTS BitPay study reported that 18% of the adult population is likely to use cryptocurrency to make a purchase. Furthermore, per the new report, 46 million consumers, including 17 million non-owners, are likely to purchase with cryptocurrency.
Consumer appetite for owning and using cryptocurrencies was something that the fashion industry didn’t really see coming. And whilst it may be tempting to jump straight on the crypto bandwagon, it doesn’t make sense for everyone.
There is a lot to understand if you want to try the technology with your fashion business, and the next step is to unpack what cryptocurrencies are and how they work. By knowing the ins and outs of cryptocurrency, you will also gain valuable insight into whether your customers will actually appreciate crypto integration.
Cryptocurrency: Money 2.0?
Believed to be more secure than debit and credit card payments, crypto has gone from niche to mainstream in the last 12 months. Once shunned by major financial institutions, today, cryptocurrencies are regarded more as opportunities than threats.
But what are cryptocurrencies?
Although the initial coin boom was in 2017/2018, cryptocurrencies are nothing new. Sometimes called “crypto-money” or “crypto”, cryptocurrencies acquired their name because cryptocurrencies use encryption to verify transactions. Unlike physical money, cryptocurrency payments exist purely as digital entries to an online database describing specific transactions.
It has been argued that digital tokens have no legislated or intrinsic value. Stored in digital wallets, they can be exchanged between users and used for trading or commerce purposes as a means of payment.
As of March this year, there are 18,465 cryptocurrencies in existence. However, not all cryptocurrencies are active or valuable. Discounting many “dead” cryptos leaves only around 10,363 active cryptocurrencies. And there are upwards of 300 million cryptocurrency users across the globe.
The firm favourite for crypto-consumers is Bitcoin. Even if you’re completely new to the world of crypto, you’ve likely heard of Bitcoin. Founded in 2009, Bitcoin was created when Satoshi Nakamoto mined the starting block of the chain, known as the genesis block. Favoured over all other currencies including Ethereum and Litecoin, 79% of crypto-consumers claim they hold some Bitcoin.
With as much as 75 percent of consumers and 60 percent of merchants wanting to use crypto in the market (according to a survey from Crypto.com and payment processing firm Worldpay) it’s time to ask yourself: will my customers use crypto services, and will these services offer an advantage or a handicap for my business?
Crypto Payment Solutions: Advantage or a Handicap?
Coinbase CEO Brian Armstrong believes that, by 2032, 1 billion people will use or have tried to use cryptocurrency. If Armstrong’s prediction is to be believed, then the rapid growth of the “crypto-economy” could mean that fashion businesses can no longer keep pressing snooze on the crypto conversation. It seems the time has come to take it all seriously, especially since it has been reported that cryptocurrency adoption has already overtaken early internet adoption.
But, before you go all in, let’s first talk about some pros and cons.
Let’s start with the most obvious pros: cryptocurrency offers better payment security, which makes fraudulent transactions less likely. Why? Because the blockchain verifies and records every transaction, making it very difficult to steal.
Also, cryptocurrencies are not bound to a particular country of origin or national bank so the fees associated are either very low of non-existent. This is a big bonus for small businesses that deal with high volumes of small payments, and for companies that serve international customers looking to avoid paying international currency payment fees.
It is also worth noting that fashion businesses that accept cryptocurrencies as payment are opening up their business to a much more extensive and ever-growing customer base, beyond those who prefer only to use traditional currencies.
As its development accelerates, another pro could be that once a fashion business dives down the rabbit hole, more strategic opportunities will present themselves – think customer retention, for example. And a customer who understands crypto might better understand NFTs, for instance.
Lastly, another pro worth mentioning is increased publicity. Fashion companies that are diving into this space are gaining favour by association. By hopping on this monetary trend, brands like Gucci are basking in Bitcoin’s growing popularity, leading to more media attention and, dare I say, more customer sales.
But with all pros come cons. There are many cryptocurrencies, and each has its own rules for transactions. Although all cryptocurrencies are created to be decentralised, Bitcoin is the only one that is fully decentralised, which means that no single person or group has control. As a result, it makes good business sense to understand how various cryptocurrencies work before committing to them as a payment solution.
Did you know that the way crypto is taxed is quite complicated? For example, in the U.S., the IRS considers cryptocurrency “property” for tax purposes. This means that businesses could be subject to a capital gains tax. Therefore, experts advise that companies first understand the tax implications before they start accepting crypto payments.
Another con is that crypto’s value is highly volatile and fluctuates significantly. This level of unpredictability is a valid reason why some fashion businesses might be pretty anxious about committing.
Accepting cryptocurrency requires an infrastructure designed to adjust prices and keep up with the fast-changing value of digital tokens. This fact has left some businesses wondering whether setting up the infrastructure is worth it.
Lastly, some experts have argued that cryptocurrency transactions are irreversible. Others disagree. Bitcoin enthusiast Mano ten Napel argues: “This is incorrect. I am not saying it is simple, but it is definitely not impossible”. He continues: “They might be on the Bitcoin baselayer, but the Bitcoin baselayer isn’t used for payments anyway (way too slow). Instead, people use the second layer: the lightning network”.
Separating Fact from Fiction
Knowing the pros and cons of cryptocurrencies is not enough to jump (or not jump) in; you also need to separate fact from fiction. By dispelling myths and misinformation, you can avoid limiting your potential growth in this market. So let’s break down some of the common myths.
‘Cryptocurrency is truly anonymous’. This is a belief that has circulated for a while now. Aidan Arasasingham and Gerard DiPippo, of the Washington-based Center for Strategic and International Studies, told Reuters that Bitcoin is not genuinely anonymous but rather pseudonymous.
“If a wallet can be linked to an entity or person, the actor can be identified, and their transactions and wallets can be traced,” explained Arasasingham and DiPippo.
Dave Siemer, CEO at Los Angeles-based asset management firm Wave Financial concurs: “The challenge is that you have to do a lot of things to make them anonymous, that makes for a horrible user experience and adds big transaction costs.”
Cryptocurrencies have also garnered a reputation for being used for illegal activities. For example, research by Mastercard revealed that in 2020, major crypto thefts, hacks, and frauds totalled $1.9 billion. But it has also been argued that in 2020 crypto crime fell to only 0.3%. So with a lot of perceptions primarily based on misinformation, you must do your due diligence.
It is also worth mentioning that even though cryptocurrencies do exclude intermediaries like banks and governments right now, it is believed that cryptocurrencies are destined to become regulated very soon, except for Bitcoin, which regulates itself.
Lastly is the whisper that cryptocurrencies will supersede paper money. The truth is that many experts believe that crypto payment is considered impractical for everyday transactions and, therefore, will not be replacing monetary notes anytime soon.
“There is no doubt that cryptocurrency is a game-changer,” stated Dr Kenneth Geers, External Communications Analyst for Very Good Security, at the virtual RSA security conference. Adding: “But in the near term, it will not replace the U.S. dollar. In the long term, anything is possible.”
The Crypto Fashion Disruptors
Another way to understand whether investing in cryptocurrencies can benefit your business is by looking at those fashion brands that have boldly taken a nibble of the once two $2 trillion cryptocurrency industry (reportedly now $1.12 trillion, since the recent crypto crash).
I am talking about Off-White, Philip Plein, and Gucci, who boarded the use of crypto despite the volatile nature of cryptocurrencies. Entering this uncharted territory like a boss, Philipp Plein is convinced that piloting this new type of currency is more beneficial than not.
In a press release, the self-anointed “crypto king” has confidently stated that Philipp Plein is making history. Adding in an interview with FashionUnited: “I believe that cryptocurrencies are the future, and my team and I have made a major commitment in time and resources, performing all necessary system modifications”.
Looking towards the crypto future is Off-White. Founded by the late American designer Virgil Abloh, the brand has stated that accepting crypto payments is another crucial step in it’s growth when it comes to “understanding the needs and desires of its ever-evolving customer base.”
Not immune to the surge in crypto adoption is Gucci. The luxury brand is the latest fashion label to begin accepting crypto payments. They announced in May 2022 that they would start accepting cryptocurrency in some of their U.S. locations later in the month.
Vogue Business reported that customers making in-store payments would be able to do so using a QR code sent by Gucci via email, which customers can scan with their crypto wallet. The stores will accept various digital currencies, including Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Dogecoin, and Shiba Inu.
Shopify has also taken a leap of faith. In a bid to bring their merchants one step closer to making cryptocurrency part of their business strategy, the e-commerce platform now allows them to accept digital currencies like Bitcoin, Ethereum and Litecoin using Coinbase Commerce, BitPay, and CoinPayments.net.
As change swiftly sweeps across the fashion industry, the other side of the coin is that 17.4% of businesses have claimed that they would probably never accept crypto payments, according to the Retail Consumer Adoption Report (2021).
One of those companies is Amazon.
The online giant has not been shy about admitting that they are not ready to add cryptocurrency as a payment option anytime soon. In an interview with CNBC, Chief Executive Officer Andy Jassy disclosed that Amazon is not close to adding cryptocurrency as a payment option to its retail business. Some experts believe that a major player like Amazon, which has millions of global transactions daily, “cannot afford such high costs as well as cash-flow challenges“.
So if you are still wary about accepting crypto payments, you are not alone. But on the other hand, this could be great news for those fashion businesses that view Amazon as a direct competitor to adopt crypto payments and run with it.
Who Are The Crypto-Shoppers?
Besides understanding what crypto payments could mean for your business and looking to those who have hopped onto the crypto bandwagon, you also need to understand the new breed of customers known as the crypto-consumers.
Scattered worldwide, crypto shoppers are consumers who purchase goods or services using cryptocurrency. The Cryptocurrencies in Retail Consumer Adoption Report (2021) believes that cryptocurrencies will be the new payment standard. The report also states that: “More than half of crypto-consumers are willing to pay fees and wait for delays as long as they can shop with cryptocurrencies”.
Supporting the growing popularity of cryptocurrencies is Checkout.com. They surveyed 30,000 consumers and 3,000 businesses to understand the behaviours and sentiments behind the burgeoning crypto market, and their research showed that cryptocurrency is increasing in popularity, particularly among millennials. It’s also worth noting that, whilst Bitcoin might serve as the most favoured coin by shoppers, it is still too early to say if its popularity is down to hype.
So, What’s Next?
If you are now asking the ‘hows’ rather than the ‘whys’, you may be ready to dip your toes into the cryptoverse.
The good news is that crypto payment solutions are making the transition easier for fashion businesses by removing the pressure to provide a service they are unfamiliar with. A great example of a provider guiding fashion brands through this evolution is LUNU.
LUNU lets customers use cryptocurrencies in everyday retail transactions in-store and online, free of exchange and processing commissions. For example, Off-White stores use LUNU to process crypto transactions via a POS terminal, automatically finding the best crypto-to-currency exchange rate.
Another crypto payment solution is Coinify. They have partnered with the aforementioned German designer Philipp Plein, whose brand currently accepts 15 cryptocurrencies, including Bitcoin and Ether. Coinify is a crypto payments platform owned by Voyager Digital.
Then there is Strike, whereCEO Jack Mallers is playing a crucial role in helping Macy’s and 400,000 other stores accept Bitcoin payments via the Lightning Network. On their recent partnership with the U.S. Shopify site, Mallers proclaimed at the Miami Bitcoin Conference 2022 that, “Any online merchant that uses Shopify can accept payments without the 1949 boomer [credit card] network, receive it instantly, cash final, no intermediary, no 3% fee.”
As a side note, it is also worth mentioning that Visa also now offers a cryptocurrency debit card. In addition, Paypal — which is accepted by 29 million merchants —announced in March 2022 that they would start allowing users to fund their accounts with cryptocurrency.
On 13th May 2022, the crypto market got a wake-up call when Luna, the sister token of TerraUSD, plunged to $0 (nce worth more than $100). Luna’s collapse was a stark reminder that Cryptocurrencies, especially those still branded experimental, still have immature infrastructure. This is a space that is still under development.
With experts unable to confirm how long crypto’s collapse might last, will this sudden change affect the appetite among influential brands to invest in crypto payments? Well, I think we need to think more long term and ask ourselves, can we imagine a world where cryptocurrency technology will not mean something to various industries?
As the hashtag #cryptocrash continues to trend on social media, I believe that cryptocurrency will continue to strongly influence the fashion industry’s preparation for a future in which consumers’ wallets consist of traditional (centralised) and crypto (decentralised).
Drama aside, there is no escaping cryptocurrency and its’ new money’ vibes. It comes down to the fact that you need to make a profit as a business, so if adopting cryptocurrency will break you rather than make you, then maybe you should stew on it for a little bit longer.