Evolution, Challenges, and Technological Solutions in the Crypto Payment Industry

Crypto Payments Soar: Adoption, Challenges, and Future Outlook

In 2024, it is estimated that 6.8% of the global population, or over 560 million people, own cryptocurrencies. This widespread ownership also points to the diverse applications of cryptocurrencies, including speculation and investment, remittances, money transfers, DeFi activities, NFT trading, and other uses such as Web3 social platforms and gaming. Speaking of gaming, in 2021, 25.1% of cryptocurrency owners made purchases related to online gaming or gambling.

Reflecting this growing adoption, the global crypto payment gateway market is expected to hit $5.4 billion by 2031, with Juniper Research forecasting that blockchain-based B2B cross-border payments will constitute 11% of total B2B international payments by the end of 2024.

More than 85% of US merchants prioritize enabling cryptocurrency payments, underscoring the increasing acceptance of digital currencies. This trend is further bolstered by remittance payments in Latin America, which saw a 40% surge in value, reaching $562 billion from July 2021 to June 2022, significantly contributing to crypto adoption in the region.

However, even though it's 2024, the strong foundation set for Web3 infrastructure hasn't fully reached its potential yet. In the ongoing analysis of the crypto payment industry, the focus is on its evolution, persistent challenges and technologies aimed at resolving these, current methods of crypto payment integration by businesses, and the role of institutional involvement in driving mass adoption.

The State of Crypto Payments in 2024 

The adoption of cryptocurrencies has surged beyond 33% from 2023 to 2024. Statista forecasts a robust compound annual growth rate of nearly 17% for crypto payments through 2030. Among the 92% of individuals familiar with cryptocurrencies, 44% foresee crypto becoming as commonplace as cards for online transactions. According to a 2023 survey by Triple-A, 65% of 7,000 consumers expressed interest in using crypto for payments, with 55% indicating a preference for online stores that accept crypto payments over those that do not.

Yet, how many merchants and businesses actually accept crypto payments? By 2025, 75% of retailers, as per a 2022 Deloitte survey, plan to begin accepting cryptocurrencies. Bitcoin is accepted by around 30,000 merchants globally, including well-known brands like PayPal, Microsoft, Shopify, Starbucks, Twitch, Subway, Christian Dior, Disney, Nike, and Walmart, just to name a few.

Not only is Bitcoin accepted by businesses, but stablecoins are also accepted by companies such as PayPal and Visa. According to Juniper Research, stablecoin transactions are expected to exceed $187 billion globally by 2028, proving that stablecoin payments are not only significant now but will continue to be a growing trend in the coming years.

To accept crypto payments, businesses must set up either a hardware or software crypto wallet and contract with a crypto payment processing provider. Merchants can integrate the cryptocurrency payment gateway into their checkout software using APIs and plugins, but, for in-store payments, they need integration with the POS system.

According to Allied Market Research, the global crypto payment gateway market was valued at $1 billion in 2021 and is projected to reach $5.4 billion by 2031, growing at a compound annual growth rate of 18.7% from 2022 to 2031.

But is it all sunshine and rainbows in the world of crypto payments in 2024? Of course not, since several problems have already emerged…

The main problems with crypto payments

Scalability 

Blockchain scalability faces three main issues: limited capacity, high fees, and delays in transaction confirmations. These problems arise when the network is overwhelmed by too many transactions. Anyone who has used Ethereum with MetaMask knows that transactions can take a while to process and the fees can be quite high. 

For example, Ethereum can only handle 10-20 transactions per second, leading to delays and expensive fees. Bitcoin, on the other hand, is even slower, processing only 7 to 10 transactions per second. This is way slower compared to traditional payment systems like Visa that can handle thousands of transactions per second without a hitch.

Security 

Imagine you've just invested in cryptocurrency market and transferred it to your digital wallet. One morning, you check your balance and find it empty – hackers exploited a vulnerability in your wallet. A friend of yours had a similar scare but with managing private keys. They wrote down their private key on a piece of paper and lost it, meaning they can never access their funds again. Just thinking about these situations shows how important security is when dealing with crypto money.

Immunefi conducted thorough research on crypto losses in 2024 and found that $473,229,944 was lost to hacks and rug pulls across 108 incidents just in May this year. Although this is a 20% decrease from the same time last year, it's still a significant amount.

Reuters reports that after the Bitcoin boom at the start of 2024, crypto wallet recovery firms were overwhelmed with user requests. If it's possible to recover access to funds, these firms charge 20% of the total amount in the wallet. ReWallet, a crypto wallet recovery firm, estimated that 20% of circulating Bitcoin, about $237 billion, could be stuck in inactive or lost wallets. 

User Experience 

We've already talked about keys and seed phrases in the previous chapter, and just handling these can be overwhelming for new Web3 users. Additionally, new users often struggle with the complicated user interfaces of Web3 apps and other technical challenges. 

To stay competitive, Web3 apps need to let users do what they need to do as quickly and as easily as possible. To become widely used, these apps need to meet the expectations of people who aren’t familiar with Web3. It's great to educate people about seed phrases, wallets, transactions, and so on but if your app isn't user-friendly, all that effort goes to waste. Plus, projects often use jargon and complicated words to explain the usability of their app, but this only confuses users even more. 

Technologies That Help Solve These Problems 

L2 solutions, rollups, plasma chains, and sidechains resolve scalability issues by markedly reducing congestion on the main blockchain, leading to quicker transaction times and reduced fees. These advancements enable cryptocurrency networks to manage high transaction volumes efficiently, which narrows the gap between crypto payments and traditional payments.

Aside from L2 solutions, sidechains can also help with making blockchain payments better. These blockchain networks can cut down on network congestion, speed transactions up and make them more reliable, and reduce fees among other things.

When it comes to improving funds security, it's hardware wallets that can enhance the trustworthiness of crypto payments. They safeguard users' private keys offline and require physical confirmation of every single transaction to keep their assets away from breaches and exploits.

There are also multi-signature wallets, whose name is pretty much self-explanatory, that require multiple approvals to execute a transaction. Multi-sig wallets are significantly more secure than single-sig crypto wallets but still not as secure as hardware wallets.

Last but not least, zero-knowledge proofs, or ZKPs, contribute to the security of crypto payments by not revealing transaction details such as the amount, sender, and receiver. While this prevents the risk of unauthorized access to sensitive financial data, the entire process still involves cryptographic proof of the transaction's validity that cannot be altered or tampered with after they have been executed.

Lastly, to bring crypto payments closer to users, apps designed for this purpose should be more intuitive, use minimal technical jargon, and have a simplified onboarding process.

Summary

Crypto payments have started gaining momentum and an increasing number of people holding cryptos are now open to paying for travel, luxury goods, and mobile data in crypto. However, the demands for enhanced security, simplicity, and lower costs in using Web3 apps still remain unmet to a certain degree. 

According to Raynor de Best, another problem with crypto payments is regulation, especially since cryptocurrency was a major source of payment fraud in the United States in 2022, and it remains to be seen how this trend continues. 

However, BDC Consulting predicts that Brazil, Argentina, Mexico, Turkey, Pakistan, Iran, Nigeria, Morocco, and Kenya will experience growth in the alternative payment methods segment, including cryptocurrencies, which could be significant if the expected increase reaches up to 25%, offering an optimistic outlook for wider adoption.