Cryptocurrencies continue to make headlines with bitcoin, in particular, attracting the attention of the investment community. Proponents believe cryptocurrencies, also known as digital coins, and the blockchain technology on the servers where they reside, are the natural evolution of money. For unattended payments leader Cantaloupe Inc., cryptocurrencies are also the natural evolution of digital payments.
And the future is here. In a few months, operators with vending equipment outfitted with Cantaloupe payment devices will have the ability to accept cryptocurrencies, in addition to cash, credit or debit cards, and mobile wallets.
On the heels of Cantaloupe’s recently announced partnership with Bakkt, Vending Market Watch editor Nick Montano caught up with Cantaloupe chief technology officer Ravi Venkatesan to discuss the role cryptocurrencies will play in the unattended retail space. Venkatesan, who was Bakkt’s head of innovation before joining Cantaloupe, discusses the cryptocurrency landscape and why it will be an important part of the operator’s business in this in-depth Q&A interview.
First and foremost, what is cryptocurrency?
VENKATESAN: Cryptocurrency is a digital currency secured by “cryptography,” which makes it almost impossible to counterfeit. It is an online currency that uses blockchain technology. Blockchain is a decentralized technology that is encrypted, secure and nearly impossible to counterfeit. Since this type of digital currency is stored in the form of tokens or “coins,” it’s cryptographically secured.
The simplest way to put it is cryptocurrency is a unique and limited set of currency. There are many types of cryptocurrencies, with bitcoin being the most popular. Ethereum, dogecoin, ripple, tether and polkadot are some other important digital coins.
Why is crypto taking the financial world by storm – again?
VENKATESAN: To explain that we've got to go a little bit into the history of how cryptocurrency got started. It began as a peer-to-peer transfer mechanism for value. The need for this unique mechanism was especially evident when transferring money across borders. Let's say I have a relative in Portugal, for instance, and I want to send them $10. Using traditional transfer methods, it would cost me about $4 to send that amount, making it cost prohibitive.
So, there wasn't an easy way to transfer value for individuals; institutions could do it, and typically for very large amounts, but individuals couldn't for modest exchanges. That’s why blockchain and bitcoin got started…it made possible peer-to-peer cash transfers. That is the origin.
At the beginning of bitcoin about 12 years ago, people realized that cryptocurrency was a secure and convenient way to transfer money. It was built with an inherent fraud prevention and security framework. Once a transaction is recorded, there was no way a hacker can change it.
Like any new technology, cryptocurrency has gone through its hype cycles. The last hype cycle peaked in 2017, when the value of bitcoin skyrocketed, and many other crypto coins emerged. The reason that happened was because people started viewing these digital currencies as speculative assets, and they were limited in quantity – only a limited set, and some ways these currencies functioned like digital gold, so people started investing in them. That drove it up – and that was one of the reasons why “crypto took the world by storm” at that time. That hype died down, however, and so did the value of cryptocurrencies; people felt that crypto was hot and then not hot anymore.
Now there seems to be another resurgence for reasons that are different. People are looking at cryptocurrencies not only as speculative assets, but also as instruments for storing value in alternative currencies with multiple benefits. These alternative currencies could be used for day-to-day payments or transfers to and from other digital assets. Other digital assets could be anything. It could be art or music that's tokenized. That has opened peoples’ minds to realize they have access to digital currencies that are very fungible which do not need to sit on the traditional bank payment rails. It opens a whole world of possibilities.
It is that possibility that is causing crypto in 2021 to take the world by storm.
When was the first bitcoin transaction made?
VENKATESAN: It was May 22, 2010, which is now known as Bitcoin Pizza Day. Programmer Laszlo Hanyecz agreed to pay 10,000 bitcoins for two Papa John's pizzas in Florida. That event was a watershed moment…people call it the “$200 million pizza” because the bitcoin spent at that time for two pizzas would today be worth that much. Of course, he ate the pizzas.
I heard a statistic that a single bitcoin transaction uses roughly 707.6 kilowatt-hours of electrical energy – that’s the equivalent to the power consumed by an average U.S. household over 24 days. Why does blockchain use so much energy?
VENKATESAN: I am one who considers this to be a severe and significant drawback of how cryptocurrency is currently structured. I don't think it's sustainable to maintain large server farms – sitting and solving puzzles to validate bitcoin transactions.
To be sure, it's a colossal waste because it really doesn't add value and it increases our carbon footprint as a species. I’m pretty upset about where we've landed with this issue.
But having said that, I think companies like Bakkt and Cantaloupe will be able to help address the energy-consumption situation. Our use cases will process transactions “off chain” – not on the blockchain – which means we will not need to go through all the mining work. That goes away, and will greatly reduce energy consumption.
In the future, I think we will see more companies coming forward with off-chain transaction mechanisms that will be trusted that eventually in bulk will get loaded back into the blockchain. When transactions are executed this way, you don't consume as much energy – you don't need as much frequent writing and reading of transactions to the blockchain.
How does Cantaloupe foresee it impacting payment acceptance in retail?
VENKATESAN: If you think about the nature of retail and particularly where you don't have people helping at checkout, you naturally think about a more sophisticated experience; instead of an attendant helping to swipe card or like scanning a barcode or holding your phone near a terminal, you’re helping yourself. Here, the concept of technological sophistication comes into play.
The other aspect is that a lot of times people who are using these terminals, may or may not be those who are “highly banked” with strong credit profiles and, hence, don’t qualify for top credit cards. Sometimes they’re using debit cards or other stored-value mechanisms. Digital currencies, in particular bitcoin, are very simple ways for them to maintain a store of their currency by linking either to their bank account or a debit card, and just using that to make payments without having to worry about anything else.
Our intent is to incentivize that space in a manner that no one has done before. To be more specific, if I spend money on a debit card today or spend money directly from my bank account, I don't get rewarded in the same way as when I use a top-tier credit card. But with a new digital form of payment like bitcoin, we foresee the opportunity to reward consumers for making purchases with it at unattended points of sale.
So, this will be a breakthrough for the underbanked?
VENKATESAN: Very much so. Digital coins can level the playing field for underbanked or unbanked individuals. It gives them much more of an opportunity to be players in a world that's moving to digital payments. And this speaks to operators who often serve this demographic.
How does Cantaloupe plan to adapt to a world that uses cryptocurrency?
VENKATESAN: We don't necessarily want to be the absolute first that implements something, but we want to be a fast follower. And we want to be the best at doing it right. That’s our philosophy. So, we've been tracking closely reports of one-off events. One report, for instance, might be about a Coke vending machine in Australia that has started taking bitcoin. Also noteworthy is PayPal and MasterCard’s announcement to support bitcoin-based payments.
There are some big industry players making moves, too.
Our view is that the user experience of how you pay has not yet reached an optimal level. But we see it will be as simple as having a virtual card on your phone from which a consumer will be able to tap and pay with bitcoin. That’s what we are working toward bringing to market.
Will existing Cantaloupe devices in the field need to be updated to support cryptocurrency payments?
VENKATESAN: The great news is that we will ride on existing rails in terms of smartphone wallet capabilities and NFC technologies that have already been deployed on Cantaloupe’s points of sale. That said, we will be able to use a combination of existing technologies to make that happen. And, of course, an integration with a partner like Bakkt, which provides a very good off-chain stream processing, will enable our cryptocurrency transactions.
When will Cantaloupe unveil its cryptocurrency solutions?
VENKATESAN: We are targeting a fall timeframe to roll out cryptocurrency payment acceptance. Cantaloupe plans to add Bakkt-branded payment signage on all devices shipping from October 2021 onward.
Ravi, despite your lucid explanation of cryptocurrency applications, I don’t yet fully understand how it works. I’m sure some operators feel the same. How steep is the learning curve for merchants and patrons?
VENKATESAN: You don't have to understand how it works.
I recall the first time somebody walked me through how a credit card transaction works: You have a credit card, a point of sale and a merchant acquirer, then you have a merchant processor and an issuing bank, along with an association, etc. When you look at that whole picture and think about all the hoops a credit card transaction jumps through…it makes your head spin. Nevertheless, every consumer uses them.
All you care about is that you have a card, you tap or swipe, a payment goes through and you buy your stuff; then every month you pay your bill.
The cryptocurrency experience is going to work the same way. Some of the underlying complexities of blockchain and cryptography will be made transparent to a consumer. Institutions will step in and provide the protection, trust and transparency.
How will vending operators with Cantaloupe devices on their machines get paid when bitcoin is accepted?
VENKATESAN: Easy. If you are an operator of a business that has, for example, vending machine and cafeteria installations in 10 office buildings, then all you do is let the location know that cryptocurrency has been turned on as an additional payment option. And when you get paid, you still get paid in U.S. dollars, so you don't have to worry about cryptocurrency. Cryptocurrency acceptance is simply a convenience for the consumer.
Who does the conversion of cryptocurrency to U.S. dollars?
VENKATESAN: It will go through Bakkt.
The way that it works is, let's assume, you as a consumer have an account with Bakkt that has $10 worth of crypto in it. (You downloaded the Bakkt app and you bought $10 worth of crypto, which you now own.) The value of that crypto can go up or down based on the market price; like any other asset, there is a real-time price for that.
Now imagine you're in front of a vending machine at an airport and want to get rid of that $10 in crypto because you either think it's going down or you just wanted to try it out. You decide to buy a pair of earbuds and pay with that crypto by simply tapping your phone to enable the transaction – using the $10 in crypto at that point in time.
It's that easy, for you as a consumer. Now in your Bakkt account the crypto balance will go from $10 to zero. The operator of the machine that dispenses the earbuds will get paid $10.
Cryptocurrencies have been around since 2009, so why haven’t they taken off earlier? Why are we having this discussion now?
VENKATESAN: I think there were three systemic problems holding back cryptocurrency: high cost, low performance and lack of trust.
Having to write to the blockchain and maintaining these large server farms drives up transaction costs that are higher than current credit card networks. The lengthy time required to validate and complete a crypto transaction, about 10 minutes, impacts performance. Thirdly, lack of trust was perhaps the biggest impediment; people were not able to confide in cryptocurrency because it was perceived as something invented by geeks and to be this mysterious digital currency existing on the edge of the known financial universe.
Now we are seeing pedigreed financial institutions, including PayPal and MasterCard, integrating crypto in their products and services. These are large, well-established institutions now coming in and saying “okay, we'll solve the trust problem because you're dealing with an account that we have.”
By the way, our cryptocurrency technology partner Bakkt was incubated by the Intercontinental Exchange (ICE), the same company that owns the New York Stock Exchange.
Once reputable companies begin addressing the trust problem and administering crypto transactions off the blockchain, they're also solving cost and performance problems. And then by integrating with a company like Cantaloupe – and we have a large footprint with over a million devices out there where consumers interact and buy stuff.
We’re now solving all the problems that were holding back crypto usage. This is why we’re excited about this initiative with Bakkt and we believe we are going to be one of the pioneers to bring cryptocurrency transactions to scale.
Thank you, Ravi