Cryptocurrency exports that no one is paying attention to

Stay informed with free updates

Just register Fintech myFT Digest – delivered straight to your inbox.

ah. ah.

A new study from crypto tax software CoinLedger shows that the retail and e-commerce sectors have the highest number of companies offering cryptocurrency purchasing options.

The study compiled BitPay’s list of 400 major companies that accept cryptocurrency as a method of payment and classified them by industry to find out which ones offer the most cryptocurrency as a payment method.

Retail and e-commerce top the list, with a total of 76 companies accepting cryptocurrency payments. The industry includes clothing and accessories stores such as Adidas, Yankee Candle and H&M, as well as online shopping platforms such as Etsy.

Adidas and Etsy told us they don't accept cryptocurrency payments. Yankee Candle and H&M did not respond to our emails.

The food and catering industry follows closely behind, with a total of 72 companies on the list. Examples include Chipotle, Chuck E Cheese's, Domino's and Hard Rock Café, as well as delivery services like DoorDash and Uber Eats.

Uber Eats and Domino's UK told us they don't accept cryptocurrency payments. Chipotle said it accepts digital payments, including cryptocurrency through its Flexa-enabled app. We're still waiting to hear back from the others, although through their websites we can guess what their responses will be.

What's going on here? Mostly gift cards. H&M, Domino's, and Uber Eats are all listed as Bitpay resells their cryptocurrency gift cards.

Long before Bitcoin was invented, prepaid cards were used as shadow currency. Their current continued popularity among cryptocurrencies (and other communities) is due to the fact that prepayments offer many advantages over on-chain tokens.

Unlike cryptocurrencies, electronic retail vouchers can be redeemed for face value virtually anonymously and instantly. Use generally falls outside the purview of financial regulators. Purchases and transfers are essentially untraceable. Trust relies on central counterparties, multinational corporations that act as both custodians and clearinghouses. Sales are exempt from VAT and reporting of capital gains is subject to individual conscience.

A recent 2010 email from Bitcoin pseudonymous chief architect Satoshi Nakamoto predicted that prepaid cards could become a bridge to tradfi. Satoshi argued that cryptocurrencies are easy to generate but difficult to cash out, but that prepaid debit cards might provide a convenient outlet for the unbanked.

In a less expected development, gift cards will become the currency for traders unwilling or unable to purchase cryptocurrencies through traditional channels. An investigation published by The Intercept in 2018 described how users were exchanging Bitcoin for gift cards on peer-to-peer markets at above-market prices.

Many retailers have since tightened security for card purchases, including limiting top-ups and blocking card purchases. Regulatory efforts focus on warning of consumer confidence scams and limiting money laundering opportunities.

Meanwhile, in the booming cryptocurrency gift card space, know-your-customer and anti-money laundering measures are applied unevenly.

Other popular crypto card exchange sites include Sweden’s Bitrefill, which says unverified customers can make up to 15 purchases per day for $5,000, or $10,000 per month. Germany-based Coinsbee said in its FAQ that KYC checks will not be performed when the amount of each transaction is less than 1,000 euros and the total value does not exceed 10,000 euros. Live On Crypto, an altcoin issuer that claims to support food banks, bought space on CoinTelegraph last week to promote its gift card store that “requires no personal information during registration and checkout.”

Last week, shortly after we inquired about its KYC and AML policies, US-based Bitpay posted on its website that the transaction threshold for unverified customers was $3,000 for payments and $1,000 for refunds, with an additional $1,000 for EU customers upper limit. . The company had not responded to our request for comment as of press time.

Among the large centralized cryptocurrency exchanges, only Binance offers cryptocurrency gift cards, launching the product in June 2023. (Nearly two months later, it added customer verification requirements for sales and transfers.) Coinbase has stopped selling prepaid cards and no longer supports withdrawals — it launched the add-on card feature in 2018. As part of the partnership, FTX sold gift cards at select Gamestop stores, but that partnership disappeared with the demise of FTX.

Nonetheless, it is still possible to purchase cryptocurrencies using prepaid cards. Specialized peer-to-peer marketplaces like LocalCoinSwap offer this kind of trading, as do sellers on forums like Reddit’s r/giftcardexchange forum.

The US P2P marketplace Paxful mentioned in the Intercept article allows cryptocurrency sellers to accept gift cards from up to 133 brands as currency. A dollar of Walmart voucher can typically buy about $0.85 in Bitcoin, or $0.50 in Ethereum on Paxful, with sellers who don’t require a receipt or physical delivery quoting worse prices.

Paxful says it applies all relevant KYC requirements. Its website blocks incoming traffic by IP address to comply with U.S. regulatory controls and imposes a $1,000 lifetime value cap on customers the company verifies only by phone.

While cryptocurrencies are slowly being legislated into the financial mainstream, gift card laws can see what’s going on behind the scenes.

Electronic money laws in the US, UK and EU only apply to general-purpose prepaid debit cards. Coupons tied to a single retailer, known as closed-loop cards, are treated as stored value instruments rather than payment instruments, so their sellers can avoid many of the reporting requirements imposed on money transmitters.

Attempts to tighten regulations also face strong opposition. Trade groups including the Electronic Money Association and the European Commerce Department have called on the European Union not to include customer authentication for gift cards as part of an update to anti-money laundering rules.

The EU proposed in February that any exemptions would be “conditional on strictly limiting the maximum value of the product, its exclusive use for the purchase of goods or services, and that the amount stored cannot be redeemed for another value”.

A stricter cap on the value of gift cards is unlikely to have much of an impact on customers at Adidas, Chuck E Cheese's, Yankee Candle and Hard Rock Café. How broader restrictions might impact cryptocurrencies is a more complex question.