by Jim Puplava for ProPublica / January 16, 2019
By now, you probably know the nitty gritty details of Bitcoin, Ripple, Litecoin and other digital currencies. You probably know that in order to take part in cryptocurrencies, you have to be willing to pay a large transaction fee, usually meaning you have to buy hundreds of thousands of dollars worth of exchangeable digital coins.
Most of these currencies have since broken through their June 2017 highs, amid fears that Bitcoin and Ethereum were bursting bubbles and the value of each coin has since fallen by more than 80 percent.
What’s not really known, and what’s interesting to consider, is that, while most of these coins are being sold on exchanges where consumers can buy or sell them, it’s the businesses that are buying and selling those coins that are the major cryptocurrencies’ companies. And that’s a modern twist on the old merchant-to-merchant credit card route.
“Bitcoin and the other alt-coins are more like what you’d call a shop” said Casey Camp-Horinek, the chief financial officer of the credit union company LIBRE, which has its own stable of “crypto-assets” like ether and ripple.
“Our ‘products’ for the clients of LIBRE include cryptocurrency assets,” he said. “If a client wants to buy bitcoin or ether or ripple then we’ll agree to carry that amount of bitcoin or ether or ripple for them, which will be free, for a defined period of time, until it is sold. The cost of carrying those amounts of assets is simply a cost of doing business, paid for by the client.”
The challenge for businesses like LIBRE, Camp-Horinek said, “is that what we would charge the client, which is a few hundred dollars for the carrying charges, is much more than the value of the ‘products’ — usually bitcoin, ether or ripple — that the client is really interested in.”
Camp-Horinek admits LIBRE has invested a lot of energy and effort into “commissioning cryptocurrency trading platforms.”
And it looks like many businesses are coming to that realization, too.
Scott McRae is the chief information officer of the Electronic Payments Association, a group that represents banks.
“We have to examine the entire life cycle of a particular payment product,” he said. “It’s something that merchants look at very carefully. Is there any value in having it? Is it providing value to the merchant, and therefore not going to be as lucrative? It’s not something the bank would just passively go into. We would have to consider the risk of holding, perhaps even longer than the hour, for someone who we were expecting to pay us a certain amount of money and, if at the end of that hour the customer still hadn’t paid us their agreed-upon amount, we could have a very significant loss.”
McRae said one of the advantages of all of this is that if you’re paying your credit card bill, the transactions have already been processed. But if you’re a business, if you are really trying to sell bitcoins and ether, or sell it to an investor, those services come in handy.
(For more on cryptocurrency, from ProPublica, see “Cryptocurrencies: Long Live the Blockchain”)