What Are Crypto Payments?

Crypto payments involve the use of cryptocurrencies such as Bitcoin, Ethereum, or stablecoins to purchase goods and services. These transactions occur directly between parties over a blockchain network, eliminating the need for intermediaries like banks or payment processors.

How Crypto Payments Work

You might ask yourself how to actually make a crypto payment. Here are the concrete steps:

1. Wallet Setup: To make or receive payments in crypto, users need a crypto wallet. This wallet stores the cryptographic keys required to access and manage their digital assets.
2. Transaction Initiation: The payer initiates a transaction by entering the recipient’s wallet address and the amount to be transferred.
3. Transaction Processing: The transaction is broadcast to the blockchain network, where it is validated by miners (in Proof of Work systems) or validators (in Proof of Stake systems).
4. Confirmation: Once validated, the transaction is recorded on the blockchain, and the recipient’s wallet balance is updated. If necessary, you can usually turn this transaction into a recurring crypto payment.

Benefits of Crypto Payments

1. Speed: Crypto payments can be processed much faster than traditional banking transactions, especially for cross-border transfers. Transactions are often completed within minutes, irrespective of the distance between the payer and the recipient.
2. Lower Costs: By eliminating intermediaries, crypto payments can significantly reduce transaction fees. This is particularly advantageous for international payments, which typically incur high fees through conventional banking channels.
3. Security: Blockchain technology offers robust security features. Transactions are encrypted and recorded on a public ledger, making them tamper-proof and reducing the risk of fraud.
4. Decentralisation: Crypto payments are decentralised, meaning no single entity controls the network. This reduces the risk of censorship and grants users greater financial autonomy.

Regulatory Landscape

The regulatory environment for crypto payments is diverse and continually evolving. Key considerations include:

1. Legal Tender Status: Only two countries, El Salvador and the Central African Republic, have recognised Bitcoin as legal tender, meaning it is accepted for payment and must be accepted by merchants in these countries.
2. General Lack of Guidance: In many jurisdictions with a positive stance towards crypto-assets, there is often no specific guidance on crypto payments, leading to some legal uncertainty. This lack of clarity can complicate compliance and adoption.
3. Conditional Acceptance: Some countries, such as Russia, permit the use of crypto assets for paying for goods and services but prohibit receiving crypto-assets as consideration. This creates a partial acceptance scenario with restricted usage.
4. Regulation Through VASPs: In certain jurisdictions like Serbia, crypto payments must be conducted via Virtual Asset Service Providers (VASPs) to comply with regulatory standards. These providers ensure that transactions meet anti-money laundering (AML) and know your customer (KYC) requirements.
5. Distinction Between B2B and B2C Payments: Some countries, including Serbia, differentiate between business-to-business (B2B) and business-to-consumer (B2C) payments, applying different regulatory frameworks to each transaction type. This distinction helps address the varying risks and compliance needs associated with different transaction types.