Credit cards have been a staple payment method for the last 20 or so years. From their humble beginning as a Diner’s card in the 1950s to the modern day’s smart-chip enabled version, they have come a long way and provide great and measurable benefits to their users. Credit cards are pocket-sized, easily portable, and have no intrinsic value in themselves. In addition, true credit cards buy you time to pay your bill, typically with a modest fee attached.
With all the benefits, credit/debit cards also have significant weaknesses, like complicated and high fees for merchants and tough qualification and use requirements for consumers, not to mention all the consumer fees and sky-high rates on unpaid balances. What’s more, the issuing bank can pull the customer’s credit at any time, leaving the consumer financially stranded.
Cryptocurrencies, on the other hand, have been gaining a lot of momentum over the past few years due to their properties of being global and not under the control of any government or institution. They introduce a real and viable alternative payment method and are likely to gain significant share in the payment methods mix in the near future.
To accept cryptocurrency today, a merchant would have to do it “out-of-band”, taking the payment “wallet-to-wallet”, circumventing the POS (point of sale) systems they already have in place, paying unpredictable fees for the transactions, all without a way to preauthorize the transaction before it goes through, and settling the transaction can take hours.
Fees in particular are a big obstacle slowing down adoption of cryptocurrency at the Point-of-Sale. With Bitcoin transaction fees rising to almost $9 before dropping to the $2-3 range, Bitcoin is becoming way too expensive to use for smaller transactions.
Bitcoin transaction fees fluctuate due to several factors. One is the size of the block in Bitcoin’s blockchain, which limits the number of transactions that can go through at any given time. Bitcoin’s network is powered by miners, who use a tremendous amount of computing power to create new bitcoins. And when there are too many transactions to process—which currently happens quite often—miners will prioritize transactions that pay a higher fee.
Bitcoin has other issues as well that make it unsuitable for the Point-of-Sale application, such as:
- Very high transaction confirmation (approval) time (from couple of minutes to several hours)
- Sender responsible for fee payment (most cryptocurrencies charge the buyer, rather than the merchant)
- No support for special transaction workflows such as pre-authorization and completion
No integration API’s
Several cryptocurrencies have tried to address some of the issues (Dash has been tackling transaction latency via Supernode protocol, and Monero has been addressing transaction privacy), but up till now none has focused specifically on being fully compatible with the POS workflow. The fees also vary widely among the cryptocurrencies.
Bitcoin Dash Monero Zcash Litecoin Ether Credit Card
$8.09 $0.60 $1.07 $0.02 $0.05 $1.47 $0.50
The ideal solution would combine the good features of credit cards (primarily the concept of a credit processing network) with cryptocurrency’s main feature of eliminating centralized controls, bank account requirements, credit approval processes, and the possibility of having credit pulled at any moment. It would also have to address the issues that are inherent in cryptocurrencies.
In order to achieve this, a special kind of cryptocurrency would have to be developed – one that solves the issue of transaction authorization latency by implementing an overlay communication protocol; solves the fee amount issue by either controlling the mining capacity or introducing “proof of stake” in addition to or instead of proof of work; solves the fee direction issue by charging the seller (merchant), and finally one that provides a DAPI (distributed API) for integration with POS.
There are two other elements that would make such a solution more robust and useful – privacy and security provided in CryptoNote-like fashion (a blockchain protocol that provides the highest level of security and privacy), and zero-knowledge claim based identity verification that would fulfill various local regulatory requirements while preserving the privacy of the individual.
As described above, popular cryptocurrencies are not compatible with the current payment processing workflows and mechanisms. They fall short in multiple areas – from fees, to API’s, to privacy, etc. One project that is building a solution specifically for this problem is GRAFT Network. Graft is a global open-sourced, blockchain-based, decentralized payment gateway and processing platform that can be used by merchants and cryptocurrency users to make payments at the point of sale easy and straightforward.
Among their benefits, they highlight:
- Compatibility with all the major payment technologies
- An option for merchants to choose their preferred payment method to get their earnings
- Possibility for all crypto users to conduct transactions in various convertible cryptocurrencies along with local fiat currencies
- They offer a traditional credit card to control all financial operations with fiat and cryptocurrency
- There is no central authority or intermediaries
- It implements Zero Knowledge Proof
- It is based on CryptoNote, a blockchain protocol that provides the highest level of security and privacy
- Maximum Transaction fees are just $0.01-$0.02
According to its official website, they just launched a presale of GRF tokens. After the 30% presale discount, one token costs 0.001834 BTC, 0.028 ETH, 28.063 XEM, or 0.0735 XMR. The minimum number of tokens that can be purchased is 10. There are additional bonuses for a purchase of 500 GRF tokens and above.
All in all, today we see a situation where there are a lot of cryptocurrencies and each of them is differentiated based on their features or usages. Both merchants and crypto users are striving for a solution for efficient payment systems. These systems have to maintain the characteristics and functions of fiat as well as cryptocurrency, while at the same time tackling all current-day disadvantages, e.g. the transaction fees and high transaction latency characteristic of bitcoin and others.