Venmo could be the ultimate cryptocurrency experience from a user-experience perspective. Any cryptocurrency that seeks to power the future of global transactions must ensure that it is supported by a payment system that is simple, user-friendly and free — like Venmo.
Bitcoin and Venmo
In the original Bitcoin white paper, Satoshi Nakamoto describes the network as “a purely peer-to-peer version of electronic cash [that allows] online payments to be sent directly from one party to another without going through a financial institution.”
While Venmo will never truly be “peer-to-peer electronic cash” — transactions require going through the centralized Venmo network — users can instantly pay their friends by opening the app and finding their friends’ profiles. And for many regular users, this is probably all they need.
Indeed, an estimated 10 million unique Venmo users, whether paying for rent or splitting the cost of a late-night McDonald’s splurge, generally agree that the user experience of payments is beautifully frictionless — like paying in physical cash, except digitally. And Venmo is generally free to use. Last quarter, Venmo processed $12 billion in volume.
Cryptocurrency Payment Experience vs. Venmo Payment Experience
For this example, I use Bitcoin as a widely adopted placeholder for a payment system to illustrate the pros and cons of current blockchain-based payment experiences vs. existing centralized payment experiences. BTC volatility is ignored because of the assumption that after a Bitcoin payment is cleared, the receiver either instantly converts the bitcoin into fiat currency or doesn’t care about the volatility (perhaps because he or she expects the price to go up).
Support: The Bitcoin blockchain supports international money transfer — anyone connected to the internet can send and receive payments.
Average transactions, fees and times: To send a payment, a user generally has to input a recipient’s Bitcoin address featuring 26–35 alphanumeric characters; e.g., 3CMCRgEm8HVz3DrWaCCid3vAANE42jcEv9.
At the time of writing, the average transaction fee on the Bitcoin blockchain was $1.10 with an average confirmation time of 31 minutes. (This example focuses specifically on the Bitcoin blockchain without the lightning network or other second-layer payment solutions, and does not account for other cryptocurrencies with lower transaction fees or faster confirmation times.)
All in all, while the Bitcoin network supports a robust and censorship-free payment network, the payment experience is not optimal for most users.
Support: The Venmo network supports money transfer under three main conditions:
- Users must be physically located in the United States.
- Users must have a U.S. cell phone that can send/receive text messages from short codes.
- If users want to transfer money from their Venmo balance to a bank account, the bank account needs to be in the U.S.
Centralized intermediary: The Venmo network is owned by PayPal. Transactions can be reversed and/or monitored for scams via Venmo customer support. There are also limitations placed on transactions, such as a $299.99 weekly rolling limit for unverified individuals and a $2,999.99 weekly limit for verified individuals ($2,000 per transaction max.).
Limits: Merchants face a rolling weekly limit of $4,999.99 for all transactions. In addition, they can’t conduct more than 30 Authorized Merchant Payments per day. A centralized intermediary is helpful for users looking to cancel funds that they accidentally sent or got scammed out of. Venmo may also terminate or place holds on accounts.
Average transactions, fees and times: To send a transaction, a Venmo user inputs their recipient’s contact name, Venmo @ username or phone number. Venmo transactions are near-instant and are generally free unless linked to a credit card. Credit card transactions are charged with a 3 percent fee. For an instant transfer of their “Venmo balance” to a bank account, Venmo users must pay a $0.25 fee. If the user is willing to wait up to one to three days, he or she can transfer a Venmo balance into a bank for free.
All in all, Venmo represents a more simple and user-friendly payment experience but faces strenuous limitations.
How Close Are We?
While no one cryptocurrency payment system has currently amassed the network effect to become a “Venmo” equivalent, early pioneers are making their mark. To name some examples, Toshi, an app-based Ethereum browser owned by Coinbase, allows users to send ether to their contacts, similar to the Venmo interface. CoinText, an SMS-based platform, allows users to send and receive BCH directly linked with their phone number, no app necessary. Coinbase also allows users to send and receive cryptocurrency (denominated in USD) via email address, but does not feature Venmo-like username integration.
Venmo vs. Cryptocurrency?
Whether or not consumers will value the marginal benefits unlocked by cryptocurrency over the current Venmo fiat currency experience and functionality remains to be seen. Perhaps, if Venmo could loosen stringent restrictions and allow global support in a government-compliant manner, internal USD “ Venmo balances” may be sufficient to power global transactions. Users already trust the PayPal brand and enjoy Venmo’s customer support guarantees that secure their funds and protect them against fraud and accidental spending.
But, if users decide that the benefits of cryptocurrency such as BTC outweigh the benefits of a fiat currency, like the USD, Venmo could adopt a cryptocurrency like bitcoin in the same way it already adopted the USD, eliminating Bitcoin’s slow transaction time and cost difficulties.
Adoption of Bitcoin
Venmo, as a second-layer application above the Bitcoin protocol, could own its users’ total BTC in a wallet they control, and synthetically redistribute the BTC balance between users by immediately updating account balances on Venmo servers, instead of making direct transactions on the blockchain. This would mean instant bitcoin exchange and could theoretically be done for free. The trade-off for users would be that their funds are stored by a centralized intermediary; however, average users don’t care now and probably won’t care in the future.
Alternatively, Venmo could act as an access point for the Bitcoin blockchain, serving purely as a connector between users by assigning Bitcoin wallets “@” usernames and never taking custody of the underlying cryptocurrency.
The Future of Payment Systems
Technically, all payment systems can support any currency (barring regulation). Even Bitcoin, which supports the BTC currency natively, could for example support USD or EUR through colored coins. Perhaps more importantly, while Bitcoin is not currently a user-friendly payment system, it doesn’t have to be, because the underlying BTC currency can be used in other payment systems as well.
Either way, global payment systems of the future will create a frictionless, easy-to-use system. Consumers’ preferences will mold these future payment systems and dictate whether or not their transactions will be censorship-resistant or censorable, free or with transaction fees, and centralized or decentralized.