What Is a Cryptocurrency Payment Gateway?
A cryptocurrency payment gateway is a payment processor for virtual currencies, similar to the payment processor gateways and acquiring banks in credit card payment networks. Cryptocurrency gateways enable you to accept digital payments and receive fiat currency immediately in exchange.
With cryptocurrency beginning to be accepted as payment at more merchants, these companies remove any uncertainties or reservations a merchant might have about cryptocurrency and allow them to offer more payment options.
It’s important to note that digital currency payment gateways are not required. It’s perfectly acceptable to use your personal wallet to accept cryptocurrency payments; however, gateways take the extra work of exchanging cryptocurrency and managing a wallet out of your hands.
Cryptocurrency Gateway Payment Flow
In terms of steps, the following workflow gets executed when a payment is made:
- Your customer opts to make payment in cryptocurrency at checkout (in-store, on the web, or in-app).
- They pay you an amount equal to the digital currency’s fair market value at the time of the transaction.
- The cryptocurrency payment service instantly converts the payment into the currency you choose.
- The money is added to your account with the provider; it is deposited to your designated bank account in intervals decided on in your service contract.
The process is transparent to you because you don’t have to worry about cryptocurrencies; only that your cryptocurrency service provider will place the appropriate funds in your account.
Crypto Gateway Fees
The provider uses a cryptocurrency wallet to facilitate the transfers. If that currency is designed with a payment system, the provider will incur fees charged by the currency network’s transaction validators.
Transaction validators verify blocks and transactions in the blockchain. In exchange for their energy use and computational power, they are paid in small increments of the cryptocurrency transaction they validated.
The providers pass on these fees to you and charge their service fees so that they can continue operating and offering their services. Here are a few gateway payment processors and their fee structures:
- CoinGate: A 1% fee (subject to change), refunds €0.25 per refund, 0.1% conversion fee
- BitPay: 1% – 2% + $0.25 per transaction
- Stripe: 1.5% of the transaction amount
Advantages
- A payment gateway removes the anonymity of who you’re dealing with while maintaining your customer’s preference.
- You have someone to contact if there are payment issues.
- You can accept payments from anywhere in the world using any cryptocurrency your provider will take.
- You receive the funds in the account with your provider, who transfers them to you.
- You don’t have to worry about or attempt to understand cryptocurrency.
- Reduces the risk of slippage by paying you the market rate for the tokens when the transaction is conducted. Slippage occurs when a cryptocurrency loses value while waiting for a transaction to be verified by its network.
Disadvantages
- A payment gateway is a third party, which cryptocurrencies were originally designed to bypass.
- You have to rely on the provider’s ability to maintain uninterrupted services because you might receive payments from around the world and in different time zones.
- Gateways are companies providing a service, so they will market themselves in a way that makes it seem like you need their services when, realistically, you don’t.
- You pay small transaction fees when you use your cryptocurrency wallet; you pay more when you use a cryptocurrency payment gateway.
- If the payment gateway is hacked, you’ll lose any funds you have in your account with the provider while you’re waiting for them to be transferred.
Special Considerations
Removing third parties from financial transactions is one of the fundamental tenets behind cryptocurrency. While this sounds great to those who embrace change and understand it, others might not accept it. Cryptocurrency is still a new concept, and it is hard to understand in a world where exchangeable value has always been placed on tangible assets. Only since the turn of the century have developed countries moved to a financial model where most of their transactions are credit and debit based, where it is possible never to exchange physical money.
It’s natural to be skeptical of something new, especially when it involves money and finances. Cryptocurrency payment gateways are not mandatory or necessary for digital currency transactions. However, they remove much of the anxiety, confusion, disinformation, and speculation that can come from a decentralized and unregulated source of value.
If you’re a business owner and understand how cryptocurrency works, you might not have any reservations about accepting it. As a result, you might not need the services of a gateway provider. But because more than 99% of the U.S economy consists of small businesses, it’s possible that not every business owner will understand or trust cryptocurrency. If this is you, an intermediary can help you address your concerns by providing an immediate exchange for fiat currency—which lets you conduct your business finances the way you want while giving your customers the payment options they choose.
Is There a Cryptocurrency Payment Gateway?
Yes. Many payment gateway providers exist to assist business owners with accepting cryptocurrency payments.
Which Is the Best Cryptocurrency Payment Gateway?
There are many to choose from. It’s best to compare them to see your needs best. Coinbase, a cryptocurrency exchange based in the U.S.—and regulated by the government—has a payment service called Coinbase Commerce.
Is There a Cryptocurrrency Payment Processor?
Yes. There are several crypto payment processors to choose from. It’s best to compare them to learn about their fee structures because they are all different.
The Bottom Line
A cryptocurrency payment gateway is a business-to-business service that helps one business accept cryptocurrency as payment. These gateways are not necessary when using cryptocurrency, but they remove most of the technical aspects and risks of using virtual currencies.
