Ever since the inception of Bitcoin, people have been talking about the inevitability of cryptocurrency-based payments. However, in the 13 years since Bitcoin launched, encrypted payments have yet to enter mainstream society. Why are encrypted payments struggling?

Historical Challenges of Crypto Payments

1. Volatility. No one wants to pay anything with an unstable medium of exchange. A potential capital gains tax further complicates the situation.

2. For most of the history of cryptocurrencies, there has been no reliable scalable blockchain.

3. Non-custodial wallets are terrible. Mobile support is almost non-existent.

4. Paying for goods and services by entering addresses or scanning QR codes is not a good user experience.

5. Industry encryption payment companies - BitPay, etc. - mainly focus on specific businesses, where encryption has no significant advantages over traditional payment methods.

Recent Improvements

1. Stable currency. USDC and USDT stablecoins alone have $100 billion, plus some other stablecoins including DAI, UXD, USDH, etc.

2. Some scalable blockchains with high throughput, low latency, and low transaction fees have emerged.

3. Non-custodial wallets are getting better in three main ways: key management has become a butter product through solutions like Web3Auth and Magic (Note: butter products refer to development tools, enterprise/b2b products and consumer products); Moonpay, Ramp, etc. have made deposits and withdrawals more convenient; and mobile wallets such as Rainbow, Phantom, and Key have also proliferated.

4. The biggest change in this regard is the rise of crypto debit cards, allowing users to spend cryptocurrencies held on exchanges such as Coinbase, Binance, etc.

5. Encrypted payments are beginning to appear in specific vertical areas, rather than as horizontal universal payments.

The rest of this post will detail change No. 5, as this is the least discussed of these major areas and, in my opinion, the most important: understanding why certain markets adopt crypto payments in the first place.

Traditional Payment Method

This is obvious, but worth mentioning: the existing payment channels are fairly comprehensive and very good at servicing most forms of commerce that exist today. The providers of these systems — Visa, ACH, Zelle, Paypal, Stripe, etc. — have been iterating on their respective payment systems for decades. They each focus on a different payment flow: you don’t use ACH to pay for your coffee, you don’t use Stripe to pay your friend for lunch at a restaurant, etc.

If payments via crypto are going to be a thing, the natural question is: what verticals are the existing payment rails essentially serving?

There are several verticals to prove this right now, and I expect many more to emerge naturally over the next few years. The remainder of this post will delve into some of these verticals.

Any two-way payment flow

I highlighted this area in my Keynote at the Multicoin Summit 2022.

A defining feature of the Internet is that it supports arbitrary bidirectional flow of packets. Prior to this, all large communication media - television, radio, etc. - were one-way.

For about the first decade of the Internet, the flow of information was mostly one-way. But the rise of social media changed that, allowing everyone to start posting content on the internet, taking advantage of the internet's core feature of allowing bi-directional packet flow.

The history of online data flow parallels the flow of payments. If you visit a website, you can easily send money out using a credit card. However, if you visit the website, it is very difficult to get any kind of financial return (requiring KYC, connecting to a bank account, etc.).

Cryptography makes it easy to capture value — be it fungible or non-fungible assets — by providing public keys. Over time, this will become a more common design pattern on the internet.

Here are a few examples of what we saw:

First, the most prominent early example is Brave’s BAT, which allows users to be rewarded for watching advertisements on the internet. It doesn't feel like this particular use case has found a tight product market fit, but there's a lot of interesting movement happening around this core behavioral flow.

Second, massive, small real-time affiliate marketing spend. Almost every e-commerce store has a feature that says "refer a friend, get $10 off your order". The reason this paradigm is so prevalent is that implementing a coupon system is much easier than facilitating massive $10 cash payments. Crypto rails makes this trivial. There are a few startups building in this space today.

Third, learn while earning system. It's common for businesses to pay Google and Facebook large sums of money to drive traffic. However, once a user visits a website, there is no way to pay that user to divert their attention to that website. It's a strange historical quirk. If anything, you'd expect the opposite: it would be easier to route payments to your website than to Google/Facebook. We hope that this design pattern will appear in games, education, and many other areas on the Internet.

The design space for sending rewards to users once they reach a web page is vast and underexplored, and will almost certainly be pioneered in the crypto orbit.

Start a new network

We've written a lot about Physical Proof of Work (PoPW), especially about Helium' and Hivemapper. The beauty of token systems is that they can overcome the cold start problem by creating economic incentives for true believers and early pioneers to start building networks before they achieve broader market network effects. This is especially important in the case of geographically dispersed physical infrastructure. A telecom network with five hotspots or a map network with five cars is useful but basically worthless. But token-based incentive systems have proven capable of overcoming the cold start problem.

There are some natural payment flows that need to be integrated with these incentive systems. Given the natural feedback loop between payment flow and inflation token incentives, payment systems must coexist on the same financial rails as token incentive systems.

This paradigm is not only applicable to PoPW. It can be applied to any network that uses token incentives to solve the cold start problem. For example, Blackbird' is using token incentives to build a crypto-native loyalty, membership and payments platform for the restaurant industry. Merchants and consumers receive tokens every time a transaction is completed using Blackbird. In this case, payment rails need to be combined with an incentive system.

This paradigm is still widely underestimated and will become commonplace in the coming years. As this new incentive system proliferates, so will associated payments via crypto rails.

Payment of Encrypted Native Assets

For on-chain native assets — most notably NFTs — it’s only natural that the payment flow is also on-chain. In this payment process, fiat deposits and withdrawals such as Moonpay, Ramp, Beamo and other projects are making it easier to pay through payment card networks. The important thing here is that the NFT seller captures value on-chain, and it is more likely to stay on-chain than shift back to traditional financial rails.

The flow of value around NFTs roughly begins to roughly mirror offline collectibles: a one-way flow from buyer to seller (e.g., digital art sales). But with the rapid development of the NFT economy, its related payment flow is also developing rapidly. Now, the NFT economy includes faster turnover assets, royalty payments, collective ownership, syndicates and funds, etc.

The next big development in this market is the creation of closed-loop systems to facilitate the creation, display/marketing and sale of NFTs by non-technical users. What does it mean?

Today, the process of creating, displaying/displaying/marketing, and selling NFTs is disjointed. Get creative with some creative tools like Octane Render. The display/marketing/display and sale is through some sort of auction house (e.g. Christie's, Magic Eden, or Solanart, etc.).

There are teams like Portal's who are building closed-loop systems to facilitate the entire workflow around NFTs, from creation, to display, to sale (and remixing for resale!). As these universes thrive, they naturally support economies with money flowing in all directions. All of this will run on a crypto-native orbit.

High Risk Payment

Certain types of payments face higher chargeback rates. The largest categories are adult content and online games.

OnlyFans charges creators 20% and immediately pays payment processors 12-13%. Passes is building a suite of tools that will enable creators to engage with their fans, and Passes uses crypto for payments. Passes has a 0% rate for paying through crypto and shares these savings with creators.

Game payment processors charge 5-15% per transaction, while Steam charges 30%. Additionally, payment processors often impose a 30-day payment delay to reduce the risk of chargebacks. These terms are rather onerous, and game developers are actively seeking solutions to address these issues.

Payments via crypto would naturally solve all of these problems. Beamo provides credit card and multi-chain payment services with a 1% rate and passes the savings on to gamers and game developers. It's no coincidence that every major game studio in Asia has shifted their entire company IP strategy into web3. Beamo smooths payments and empowers gamers to build and monetize new communities.

Creator Monetization

Creators face many problems when monetizing content. But one of the biggest problems is the lack of transparency in the flow of payments in web2 systems. If a creator posted a video that generated 1 million and 10 million views, it would be difficult, if not impossible, to understand the difference in revenue. Combined with other variables such as different subject areas, language or geography, it is nearly impossible for creators to truly understand their revenue streams on web2 platforms.

The existence of crypto payments does not magically solve this problem; however, crypto payments can facilitate new types of applications and experiences, providing creators with transparency and auditability around their revenue streams. We believe it is for this reason that the next generation of creator monetization tools will be built on crypto payments.

For example, let's look at Arpeggi. Arpeggi has pioneered some of the most interesting ideas in monetizing creators, especially in the world of making beats (music). Most modern beats consist of unique stems, which are individual noises repeated at a certain frequency. Arpeggi provides a toolset that allows stem (stem) creators to upload stems, and beat makers to remix those stems into actual beats. Arpeggi does an attribution analysis of each stem's contribution to the beat, and then automates the payment flow as the revenue for that beat comes in. This can happen almost in real time!

While Arpeggi won't replace Spotify or solve distribution problems, I emphasize it to demonstrate how the payment process and attribution can be reimagined for creators. Many other creator monetization apps are adopting the idea I just described in Arpeggi. If creators can generate meaningful revenue streams by using fan engagement tools separate from web2 distribution platforms like YouTube and TikTok, I expect new platforms to take advantage of crypto payments as they fundamentally improve the payment process for creators. There was some pain in moving away from the web2 platform; therefore, the new tools provided by the web3 platform must be better in many ways to justify the cost for creators.

Today, creators do not expect transparency or a timely payment process, and we expect an explosion of new creator monetization tools based on crypto payments in the next few years, which will reshape the norms and expectations of the entire industry. Audius, Passes, Geneva, and many other teams are working toward this future.

International Payroll

The rise of remote work has increased the number of people working part-time or full-time at small companies in another country. Companies like Deel, which provide payroll systems for companies with large numbers of international employees, quickly became unicorns.

Talk to anyone who has set up international payroll and they will tell you how difficult it is. Encryption won't solve all of these problems (e.g., compliance and taxes), but it can solve those directly related to sending money across borders. Deel announced support for cryptocurrency payments in February, and I hope more companies in this space will roll out similar features. Much of the world expects to be paid through crypto payments, and payroll tools are evolving to support this.

Crypto Native Neo Bank

Millions of people today want to keep the vast majority of their net worth in crypto assets. However, most banks do not seamlessly bridge traditional banking and cryptocurrencies. This presents a lot of user experience challenges for these people.

Think automatic monthly credit card payments. This concept is very convenient and also inconsistent with cryptographic systems (3rd parties are expressly prohibited from debiting user accounts). If a bank learns that a customer is storing their assets in cryptocurrencies, the bank should send the customer an email with a link to send the payment amount. Users simply click on the link and authorize the payment with their private key, and the whole process takes about 5 seconds from start to finish. You can imagine similar workflows for sending ACH and wire payments from crypto wallets etc.

Juno is building a bank that allows users to seamlessly manage their money across traditional and crypto. Over the next few years, these crypto-native banks will have billions of dollars in payments and will unlock even more new uses for payments via crypto.

Real-time interest payment

Most traditional banks pay interest on a monthly basis. DeFi protocols such as Compound and Aave pay interest in real time. For many users, this is a huge draw. Being able to refresh the page 5 minutes after opening an account and see the account balance grow is psychologically powerful. The receipt of real-time interest payments can also be facilitated through streaming payment services such as Superfluid.

Online Community

People want to connect with like-minded people. Over the past few decades, this desire has manifested itself in many online mediums, notably Reddit, FaceBook groups, gaming forums, and more.

I like to call them colloquially "community chatroom platforms" such as Discord, Geneva, and Satelite. People love to chat, they love to talk about common interests. They naturally gather in a community chat room, looking for topics of interest.

As more people spend more time in these communities, as these people build relationships and connect with each other,As these communities come together to do more group commerce, there will naturally be more money flowing. We expect many of these payment flows to be routed through crypto-native currencies due to the hassle of connecting chatroom identities to myriad web2 payment rails. However, if you assume that everyone on the community chat system already has a public key that can be used to receive value, then integrating an in-app closed-loop payment process is trivial.