Exploring the Use of Crypto-Assets for Payments

Abstract

This paper explores the current use of crypto-assets for payments, focusing mostly on unbacked crypto-assets, while selectively referring to stablecoins. Although some specific characteristics of crypto-assets, such as their price volatility and unclear legal settlement, render them unsuitable for payments, the rapid technological and regulatory developments in the area of crypto-assets-based payments justify monitoring developments in this area. We therefore try to answer the research questions of which/why/how/where/by whom crypto-assets are used for (retail) payments. We analyse and describe a variety of ways in which crypto-assets are used for making payments, focusing on the period from 2019 to 2023 in Europe and worldwide, based on the publicly available statistical data and literature. We identify and exemplify the main use cases, payment methods, DeFi protocols, and payment gateways, and analyse payments with crypto-assets based on location and market participants. In addition, we describe and analyse the integration of crypto-assets into existing commercial payment services. Our work contributes to understanding the shifting domain of crypto-assets-based payments and provides insights into the monitoring of relevant developments via various dimensions that need to keep being explored, with the objective of contributing to the maintenance of the integrity and stability of the financial ecosystem.

1. Introduction

While crypto-assets were originally created with the intention of serving as a means of payment that dispenses with intermediaries, their use has not yet considerably extended beyond the crypto-asset environment. As mainstream attention to crypto-assets grows, we could potentially see an increase in the use of (certain types of) crypto-assets for payments. Such an increase could potentially have multiple consequences in the financial ecosystem and therefore should be studied. Indeed, the role of crypto-assets in the payments ecosystem has attracted a lot of attention and different views [1,2,3,4]. It is therefore important to keep track of the developments and trends in this area.

Advances in the relevant regulatory frameworks should also be considered. A prominent case is the entry into force of the Regulation on markets in crypto-assets (MiCAR) [5] in the European Union in June 2023, with full applicability in 2024, which could potentially impact the use of crypto-assets (in particular stablecoins—a category of crypto-assets that purports to maintain a stable value) for making payments. The MiCAR already considers the possibility of the potential wider adoption of stablecoins by retail holders and the risks and challenges that such a development would raise. Recital 5 of the MiCAR states that “It is, however, possible that types of crypto-assets that aim to stabilise their price in relation to a specific asset or a basket of assets could in the future be widely adopted by retail holders, and such a development could raise additional challenges in terms of financial stability, the smooth operation of payment systems, monetary policy transmission or monetary sovereignty”. It is, therefore, important to also closely monitor and analyse crypto-asset-related developments in the field of payments and thus address the gaps in understanding the real-world use of crypto-assets for payments. However, such monitoring is often hampered significantly by the lack of official statistics and other high-quality data on the use of crypto-assets for payments.

Our motivation is to contribute to addressing the gaps in understanding this important topic as, on the one hand, developments in the field of crypto-asset-based payments are occurring rapidly and, on the other hand, there is a lack of necessary official data. We aim to create a clear picture of the current status of payments using crypto-assets, as well as identify the trends in this field and predict potential future developments. The existing research on the use of crypto-assets for payments has been based so far on qualitative methodologies and surveys, such as the works of Al-Amri et al. [6], Kayani et al. [7], and Busse et al. [8] and in a more general concept of crypto-assets adoption [7,9]. We therefore try to fill in the gap regarding the lack of data-based analysis. In order to achieve this, and considering the lack of relevant official data, we rely on publicly available and voluntarily provided data to analyse the current use of crypto-assets for payment transactions during the period from 2019 to 2023, focusing mostly on unbacked crypto-assets, while referring to crypto-assets that are stablecoins only where specifically mentioned. We consider that the use of stablecoins may need a further and separate analysis in relation to the MiCAR adoption [10]. Special attention is paid to the trends and developments in European countries. The main research questions are as follows: (a) Which crypto-assets are used for (retail) payments? (b) Why and how are crypto-assets are used for (retail) payments? (c) Where are crypto-assets used for (retail) payments? (d) Who uses crypto-assets for (retail) payments? The answers to these questions can offer an initial evaluation as well as a solid basis for further analysis.

The rest of the paper is thus organised as follows: In Section 2, we present the various categories of crypto-assets that can be used for payments (the “which” question), and the main use cases of crypto-assets for payments which show the motives for their use (the “why” question). Section 3 describes crypto-asset payment methods (the “how” question). Section 4 provides novel payment indicators for crypto-asset payments by economic sector and geographical area, to try to answer the question about where crypto-assets are used for retail payments. Section 5 attempts to answer the question of who uses crypto-assets for making payments. In Section 6, the paper provides insights into how crypto-assets are being integrated into existing commercial payment services. The conclusions follow in the final Section 7.

2. Crypto-Assets and Their Use Cases for Payments

The MiCAR defines crypto-assets as digital representations of a value or of a right that can be transferred and stored electronically using distributed ledger technology or similar technology (art. 3.1(5) MiCAR), noting that the representations of value include the external, non-intrinsic value attributed to a crypto-asset by the parties concerned or by market participants, meaning the value is subjective and based only on the interests of the purchaser of the crypto-asset (recital 2 of the MiCAR). While the MiCAR does not use the term stablecoin, it is generally understood that only asset-referenced tokens (ARTs) and electronic money tokens (EMTs) qualify as stablecoins, contrary to crypto-assets other than ARTs and EMTs, so-called unbacked crypto-assets. The MiCAR defines ARTs as a type of crypto-asset that is not an electronic money token and that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies (article 3.1(6) MiCAR). EMTs are a type of crypto-asset that purport to maintain a stable value by referencing the value of one official currency. The definition of crypto-assets in the MiCAR encompasses ARTs, EMTs, and crypto-assets that are not ARTs or EMTs. While the first two categories are generally referred to as stablecoins, the latter category is generally referred to as unbacked crypto-assets.

The broad variety of available crypto-assets unlocks several use cases for payments, such as payments with crypto-assets in e-commerce, stores, peer-to-peer transactions, payments for tokenised assets (such as digital bonds and non-fungible tokens (NFTs)), and a combination of other novel use cases that may cater to specific needs, such as micropayments and streaming payments. The following sections describe the main use cases for payments using crypto-assets.

2.1. Micropayments

There is currently no agreed upon definition of a micropayment. However, it generally refers to payments of very low value that are usually made in an online environment [11]. Enthusiasts refer to an up-and-coming use case for micropayments, machine-to-machine payments, whereby internet of things (IoT) devices can communicate payments autonomously. An example would be an electric car that automatically pays for the exact amount of time it parks in a certain location. These enthusiasts argue that the conventional payments landscape is not particularly well suited to these types of low-value payments due to the associated volumes, costs, and processing fees of the individual payment transactions. They assume that blockchain technology and other distributed ledger technologies (DLTs), which refer to technological infrastructure and protocols that allow for simultaneous access, validation, and record updating across a networked database [12], such as a Directed Acyclic Graph (DAG)-based ledger [13], have the potential to enable large-volume, low-value digital micropayments using crypto-assets. There are multiple DLT platforms on the market that seek to achieve efficient crypto-asset-based micropayments. Some examples of these include the following:

• IOTA [14]: This crypto-asset, launched in 2016, seeks to enable micropayments by using a DAG-based DLT. As the IOTA network does not use mining to validate transactions, this facilitates a feeless transaction model. The IOTA Foundation has presented some micropayment use cases, such as peer-to-peer (P2P) energy trading, for which its real-world adoption appears limited at present.
• Brave [15]: This is an opensource browser that offers its users the option to be paid for the ads that are displayed in the browser. For this purpose, a crypto-asset called the Basic Attention Token was created. The browser reported 65 million monthly active users and 10.6 million wallets in December 2023.
• The Lightning Network [16]: This is a Layer 2 payment protocol that allows for micropayments in bitcoin (see Appendix C). We note that a Layer 2 (or rollup) is a separate layer that extends a Layer 1 blockchain by executing multiple transactions and submitting them as a single transaction into the Layer 1 blockchain. By submitting the transaction data into Layer 1, rollups -leverage the security characteristics of the Layer 1. The use of rollups could reduce transaction costs, which could, in turn, allow for the better use of micropayments.

Crypto-assets could enable growth in the area of micropayments. However, most crypto-assets that support micropayments are still in the investigation phase. The adoption of these types of crypto-assets in the real world looks to remain limited at this point. This may be due to the blockchain trilemma: a crypto-asset must compromise on either the decentralisation, security, or scalability of a blockchain. As a result, if a blockchain is to perform a lot of (low-value) transactions at the same time, the hardware requirements of the nodes will go up, which leads to centralisation. One of the solutions for scaling blockchains is to have several layers of blockchains (Layer 2s), instead of a single one.

2.2. Streaming

Another use case where crypto-assets are used for payments is via DeFi payment applications. DeFi payment applications enable crypto-asset streaming. This is where payments are streamed continuously or regularly to a receiver based on a specified rate (the amount of crypto-assets transferred per second) and timeline (the start and stop time of a stream). The rate and timeline are setup in smart contracts. Crypto-assets aside, money streaming is already possible via existing banking arrangements, where automatic transfers of funds enable regular, periodic transfers between two (or more) accounts without having to issue further instructions after the initial instructions and authorisation. However, decentralised money streaming protocols, such as Sablier [17] and LlamaPay [18] (see Appendix C), enable crypto-asset streaming in a more granular way. They facilitate mainly continuous payments in relation to a provided service, such as salaries, where employees receive crypto-assets in real time for their work instead of on a monthly basis in fiat money, donations, and subscriptions.

2.3. Instant Payments/Instant Settlement

The advocates of crypto-assets emphasize their use for making payments with an instant or atomic settlement of transfers on a distributed ledger, including blockchains. This use case would be relevant, in particular, for the possibility of settling transactions in tokenised assets with delivery versus payment in real time on the same platform. Instant settlement, however, refers to the technical settlement of a transfer, at best. The legal settlement of transfers in crypto-assets is uncertain, and may not be settled instantly with legal finality. In Europe, for example, such transfers do not fall under the Settlement Finality Directive [19]. Blockchains are based on the “code is law” principle. Blockchains, therefore, have no visibility within the underlying legal framework that is applicable between the parties. The Lightning Network [16] and Flexa [20] are examples of decentralised payment software protocols that use blockchains and enable instant payments (see Appendix C).

2.4. Cross-Border Payments

A cross-border payment is a transaction where the payer and the payee are located in different jurisdictions. It often involves cross-currency conversion. These types of payments are currently complex in nature and they often prove to be expensive because of the involvement of multiple intermediaries, jurisdictions, time zones, and divergent regulatory frameworks [21]. Cost is not the only factor that causes friction in cross-border payments. These payments are much slower, less accessible, and more opaque compared to domestic payments. As part of the broader G20 Roadmap for Enhancing Cross-border Payments, the BIS Committee on Payments and Market Infrastructures (CPMI) assessed whether and how the use of stablecoin arrangements, if properly designed and regulated, and compliant with all relevant regulatory requirements, could enhance cross-border payments. The CPMI identified multiple possible opportunities that could arise from the use of stablecoin arrangements for cross-border payments, including the following [22]: (i) reducing costs, as a stablecoin could shorten long transaction chains by reducing the number of intermediaries; (ii) increasing speed, as the DLTs that underpin most stablecoins, are, by definition, available 24/7; (iii) expanding the set of payment options, as stablecoins could be an alternative digital option available for individuals who want to send or receive remittances; and (iv) improving transparency, as stablecoins would facilitate the better traceability of payment statuses in real time by making use of public DLTs.

Nevertheless, several challenges concerning the use of stablecoins for cross-border transactions have been identified ([22,23]). These challenges include the following: (i) the lack of a sound governance structure; (ii) concentration and monopoly risks, which could lead to a lack of competition and consumer protection; (iii) issues with data privacy, anti-money laundering, and countering the financing of terrorism; (iv) divergent regulatory frameworks across jurisdictions; (v) potential fluctuations in exchange values away from the par; and (vi) the inconsistent availability of on- and off-ramps that would allow stablecoin users to easily convert them to cash or commercial bank money held at regulated financial institutions.

Although there are some ongoing initiatives (see Section 7) at the time of the writing of this paper, no stablecoin exists that addresses all the challenges associated with cross-border payments in such a way that it would outperform existing cross-border payment rails [22]. It still remains unclear whether a future stablecoin would be able to achieve a setup where the benefits of executing cross-border payments via a stablecoin would outweigh the associated drawbacks. Moreover, the alternative of a CBDC (Central Bank Digital Currency) for the same purpose, which would inherently resolve many of the aforementioned drawbacks, emphasizes this open question.

3. Payment Methods, DeFi Protocols, and Gateways

In this section, we present the methods used to pay with crypto-assets and the specific systems that facilitate the use of these methods, specifically DeFi payment protocols and payment gateways.

3.1. Methods

There are several ways to pay with crypto-assets. First, consumers can pay for goods and services using a cPOS terminal. In this case, depending on the setup and what both parties to the transaction agree, the merchant can receive either crypto-assets in an electronic wallet or fiat currency.

Second, crypto-assets can be held in electronic wallets (digital wallets) with a payment function and then transferred directly between two wallets without the need of a terminal, where such a transfer would mark the payment for a transaction between a customer/payer and a retailer/payee, if they so agree. In such a transaction, the transfer of crypto-assets, constituting a value transfer in the eyes of the two subjects involved, occurs without the intervention of financial intermediaries. Once such a transfer is validated by the community of validators on the blockchain, the transfer is irreversible from an operational, IT perspective (unless a fork occurs). From a legal perspective, however, settlement finality would not be ensured until at least midnight of the day of the transfer. This is because transfers of crypto-assets are not exempt from the zero-hour rule [24] in those countries whose insolvency laws include this rule. The prerequisite for using crypto-assets to pay for transactions in this way is an activated digital wallet, which constitutes the tool for managing and storing one’s crypto-assets. Various payment protocols have been developed to allow for the transfer of crypto-assets between two market participants (see Section 3.2). Wallets are also used in crypto payment gateways, which are platforms that aim to facilitate crypto payments in the retail sector (see Section 3.3), bringing retailers and customers together. Digital wallets are also used in various existing European payment solutions, such as iDEAL [25], Klarna [26], Swish [27], and Bankgiro [28].

A third way to pay with crypto-assets is to use cards. In general, crypto-asset payment cards work as follows: upon initiation of a payment order, this triggers a mechanism managed by a relevant exchange for the instant conversion between the customer’s crypto-asset portfolio and the fiat currency. Conversion fees are charged by the exchange. This is called off-ramping, where the crypto-asset is converted to fiat money via card programs. After the conversion, the fiat money circulates on the card network before reaching the beneficiary of the payment. The exchanges, rather than any of the other parties involved, manage the crypto-assets themselves. This payment method allows the holders of crypto-assets to pay in fiat money while using their crypto-assets in all shops that are part of the card network. The management of AML-CFT compliance for this payment method is not clear, but appears to mainly rely on the crypto exchange, while the payment firm only conducts due diligence on the crypto exchange. Because of this lack of clear AML-CFT compliance, some partnerships have been terminated. For example, Mastercard ended its partnership with the crypto exchange Binance [29] in August 2023, while VISA has stopped issuing new Binance cards in the European market. As a result, the Binance card program in the European Economic Area ended on 20 December 2023 [30]. Nevertheless, VISA has partnered since 2021 with multiple crypto exchanges, resulting in a payment volume of USD 3 billion at the end of 2023 [31]. The Revolut card [32] also supports payments with crypto-assets. Revolut customers can link a Revolut card to any of their crypto-asset accounts. Upon the initiation of a payment order, their crypto-assets are automatically exchanged for the equivalent fiat amount via a partnership with a crypto exchange. This automatic exchange must be based on a preliminary authorisation and standing order from the Revolut customer to the crypto-asset exchange to exchange crypto-assets into fiat money whenever a payment order is initiated. Standard exchange fees apply to these transactions. However, the “link card to crypto pocket” feature is currently available only in the UK and Switzerland. Furthermore, one can receive crypto-assets sent by another Revolut user via the Revolut platform, allowing for payments in crypto-assets. Regarding the crypto-asset management rates, Revolut streams the prices from the exchanges they have partnered with and calculates a volume-weighted average price. The derived rate considers additional factors, such as market depth and volatility.

Fourth, crypto-assets can be used for making payments via payment accounts by instructing the customer’s own bank. Some crypto payment platforms are integrated with bank accounts, allowing users to link their crypto wallets to their bank accounts and convert between fiat and crypto-assets. Some examples of crypto payment platforms that support payment accounts include the following:

• BitPay [33] allows businesses and individuals to receive and send crypto payments. BitPay also offers BitPay cards, which are prepaid MasterCards. Users can load their cards with crypto-assets and spend the crypto-assets (converted into fiat money) wherever MasterCards are accepted. Users can also withdraw money from ATMs and transfer money to their bank accounts using the BitPay app.
• Wirex [34] is a platform that combines crypto-assets and existing currencies in fiat money into a single account. Users can buy, sell, exchange, and store over 20 crypto-assets and fiat currencies using the Wirex app and card. The services and features supported by Wirex depend on the country and the applicable national legal framework. In some countries, such as the UK and the USA, Wirex offers cashback rewards (Cryptoback), bank accounts, and money transfer services. Users can link their Wirex accounts to their bank accounts.
• Crypto.com [35] is a platform that aims to accelerate the adoption of crypto-asset payments. Users can buy, sell, store, and earn over 100 different crypto-assets and fiat currencies through the Crypto.com app and cards. Crypto.com is a lending, gambling, and investment platform. Users can link their Crypto.com accounts to their bank accounts.

Fifth, even though not directly used for payments, consumers can use crypto ATMs (cATMs) to buy, sell, or send crypto-assets to others using cash, cards, or apps. Figures and charts on cATMs are provided in Section 4, while a description of the functioning of cATMs can be found in Appendix A.

3.2. DeFi Payment Protocols

Despite the fact that payments using crypto-assets can take place on most blockchains, coders have developed DeFi payment protocols specifically focused on payment functionalities like streaming, micro-payments, and faster processing, in an attempt to facilitate payments using crypto-assets. A DeFi payment protocol is essentially a set of rules and procedures implemented as a smart contract on top of a blockchain (usually Ethereum), that allows for peer-to-peer payments. These payments are recorded on the underlying blockchain. According to DefiLlama [36], DeFi payment protocols represented 0.5% of the total value locked (TVL) in DeFi at the end of November 2023. This equates to approximately USD 264 million (Figure 1). This could mean that only around 0.5% of all the value locked in crypto-assets is used for making payments.

The TVL for payments reached a peak towards the end of 2021 and then declined. It remained quite steady for almost a year (end of 2022–end of 2023), at less than 10% of the November 2021 historical maximum (Figure 2).

The market for DeFi payment protocols is highly concentrated: four protocols (Flexa [20], Lighting Network [16], Sablier [17], and LlamaPay [18]) represent almost 100% of the TVL (Figure 3), with the first three accounting for the largest share. Two protocols, in particular, dominated at the end of 2023, the Lightning Network and Flexa, with shares of 74.53% and 21.52%, respectively, on 30 November 2023 (see Appendix C).

3.3. Crypto-Asset Payment Gateways

Crypto-asset payment gateways are new service providers that facilitate transactions between merchants and customers by processing payments in crypto-assets. They bridge the traditional financial systems and crypto-assets by enabling e-commerce platforms, physical merchants, and other market participants to include crypto-asset payments among their payment options. They offer functionalities, such as accepting and processing crypto-asset payments, real-time transaction confirmation, automatic conversion to fiat currency, wallets for storing crypto-assets, and the encryption of transaction information by utilising blockchain technology. Crypto-asset payment gateways integrate with e-commerce platforms point-of-sale systems, in particular, shopping cart software, and billing systems. They charge fees and provide dashboards to help track transactions. While these systems most commonly support bitcoin payments, some gateways also support alternative crypto-assets, such as ether, litecoin, and bitcoin cash. Some examples of crypto-asset payment gateways [37] are Coinbase Commerce [38], CoinGate [39], CoinRemitter [40], CoinsPaid [41], and Coinify [42]. Through a crypto-asset gateway, a crypto-asset payment made by a customer is credited to a merchant, from where it can be transferred to another wallet. For example, a Coinbase Commerce account is a digital account that allows merchants to accept payment in one of seven crypto-assets. Anyone can sign up for these gateways using a valid email address and a phone number, no matter where the customer is. It also requires the integration of two-factor authentication. A retail user can pay a merchant using a hot wallet. A hot wallet is a crypto-asset wallet that is always connected to the internet and crypto-asset network. This wallet shares a public key with a merchant, which the merchant then uses to access (debit) their customer’s funds on the blockchain, while crediting their own account. Coinbase Commerce targets online service providers, such as Shopify [43] and Woo Commerce [44], and also freelancers and small business owners [45]. Businesses incur costs for (i) transactions due to the need to pay the miners of the crypto-asset network and (ii) for converting crypto-assets to fiat money, which can be performed using a crypto-assets exchange.

4. Payees—Geographical Area and Market Sector

4.1. Geographical Area

At the global level, the United States recorded the highest number (28,143) of cATMs in 2023, according to CoinATM radar [46], with more machines found there than elsewhere in the world. Canada (2803) and Australia (760) followed in second and third place. The UK, which was ranked 17th in 2022, fell to 61st place in 2023. This was probably due to the fact that the UK Financial Conduct Authority (FCA) has actively been pursuing crypto ventures in the UK. The FCA has been raising concerns about crypto-assets, in part due to the spike in interest in the crypto market that occurred in 2021, and because crypto-assets remain an unregulated product in the UK [47].

At the European Union level, cPOSs and cATMs are unevenly distributed. This may reflect the use of crypto-assets throughout the EU and the collective willingness to explore and integrate blockchain solutions into traditional financial frameworks with different degrees of adoption. In 2023, there were more than 1400 cPOSs in Slovenia and Italy, marking a strong presence in southern Europe (Figure 4a). There were over 500 terminals in Germany, Spain, and Hungary, while Estonia, Latvia, Lithuania, Sweden, Finland, Denmark, and Ireland counted less than 100 terminals. In the EU, cATMs seem to be less common than cPOSs, reaching almost 300 terminals only in Poland and Spain (Figure 4b). An analysis of Coinmap [48] and CoinATM radar [46] shows a growth rate of about 60% in the EU between 2018 and 2023 for both cPOSs and cATMs, possibly signalling growing interest in the use of these instruments.

Nevertheless, the share of cPOSs and cATMs relative to the countries’ populations remains very limited compared to the number of POSs and ATMs in fiat currency (2 versus 3573 and 0.6 versus 73—Figure 5a,b).

According to the Study on the Payment Attitudes of Consumers in the Euro area [49], in all the participating countries, crypto-assets are primarily used for investment purposes. Lithuania, France, Latvia, Italy, Luxembourg, and Spain stand out as the countries with the highest percentage use of crypto-assets for payments (Figure 6). Beyond these variations, the differences between the countries do not lead to any other apparent conclusions. Overall, the use of crypto-assets for payments appears to be low.

Figure 7 illustrates the breakdown of the number and value of online payments by payment instrument in the euro area. The four categories include payments by (i) card, (ii) credit transfer, (iii) e-payment solutions (encompassing PayPal and other online or mobile methods, such as Klarna [26], iDeal [25], and Afterpay [50]), and (iv) other (encompassing loyalty points, vouchers, gift cards, crypto-assets, and other payment instruments). The first three categories show a slight decrease between 2019 and 2022, except for a marginal increase in the value of credit transfers. In contrast, both the number and value of payments in the fourth category, including crypto-assets, show a significant increase.

4.2. Market Sector

Those payees around the world that accept crypto-assets for payments belong to a diverse range; they are not restricted to a particular segment of the market. Bitcoin can be spent in shops around the globe and, according to bitcoin maps, more than 10,500 merchants accept payment in bitcoin [51]. Other sources support the fact that a growing number of companies accept payments in crypto-assets [52]. An attempt to categorise the wide variety and number of payees accepting crypto-assets results in a broad and varied list, including online market places, such as Crypto Emporium [53] and BitDials [54]; gift card shops, such as Bitrefill [55]; Microsoft; charity organisations, such as the American Red Cross; luxury fashion shops, such as Ralph Lauren; and e-commerce sites for managing inventory, shipping, and plane tickets.

Many of these merchants are stores that use the crypto-asset payment service provider and crypto-asset payment processor BitPay [33], which is based in the USA, and owns a European subsidiary based in the Netherlands. These merchants receive fiat money rather than bitcoins, and other crypto-assets paid as bitcoins to merchants are automatically exchanged for fiat money before they are transferred to merchants. On 22 February 2024, BitPay [33,56] claimed to have processed 334,486 crypto-asset transactions (assumed to be payment transactions) over the last six months.

In Europe, the merchant category distribution of bitcoin cPOS terminals shows that more than 50% of these terminals are placed in catering and service stores (Figure 8). There are no data available on the actual use of bitcoin for making payments to merchants, either in terms of the value or volume of transactions. Furthermore, these figures must be considered with caution, as they were collected by Coinmap, CoinATM radar, and BTCmap on a voluntary basis, and include some repetitions and incomplete information on locations and merchant categories (see Appendix A for the dataset specification), which probably could not be completely eliminated, despite cleaning.

5. Payers—Who Uses Crypto-Assets for Payments?

The ECB SPACE report for 2022 [49] mentions that the influence of crypto-assets on the payment landscape was not considered in the SPACE report of 2019. However, since then crypto-assets have spread, perhaps due to secondary effects caused by pandemic restrictions. In Europe, this may have been further supported by increased regulatory clarity, which could have affected consumers’ perceptions of crypto-asset usage and payments. The monitoring of crypto-asset-related developments is therefore becoming more and more relevant.

There is no publicly available information about who actually uses crypto-assets for payments. However, data on ownership and use cases within the euro area are available [57]. Figure 9 shows the overall ownership by country, with the respondents indicating whether they hold crypto-assets (independent of the size of the holding in proportion to other assets the respondents may hold). The euro area average shows that a modest 4% of the population holds crypto-assets, with the highest percentage share being in Slovenia (8%) and Luxembourg (8%). In Slovenia, the highest percentage of crypto-assets is held by people in the 25–39 age group. Despite increased attention in popular culture and the financial markets, the uptake of crypto-assets by the population in general remains relatively low. Research conducted by the Dutch National Institute for Budget Information (Nibud) in November 2021 showed that 27% of young adults (18–30 years old) invested in (not paying with) crypto-assets [58]. Pos concluded in July 2022 that given the early stages of the discovery and establishment of the utility functions of crypto-assets in mainstream society (for example, as a means of payment or exchange), a negative relationship between its utility and the motivation to invest still exists today. In the future, when crypto-assets are regarded a more established means of payment, for example, this relationship may turn positive [59].

The individuals who disclosed that they held crypto-assets were asked about their use of them, either for payments, investments, or both. The results varied widely across groups, with a strong emphasis on saving for investment. In most countries, two to three times more individuals owned crypto-assets exclusively for investment compared to those holding them solely for payment purposes.

Examining the countries where investment predominated, the survey revealed that around 18% of French consumers used crypto-assets for payments, while 60% considered them an investment vehicle; in Germany, 85% held crypto-assets for investment purposes, 8% for making payments, and 7% for both. Conversely, 24% of the users of crypto-assets in Lithuania reported using them for payments, and 17% also used them for investments. While crypto-asset activities, including stablecoin payments, were observed across all eurozone countries, the reported use for payment purposes was trivial or niche by the end of 2023.

6. Existing Commercial Payment Systems That Incorporate Crypto-Assets for Payment Services—Interoperability

6.1. PayPal

PayPal [60] offers customers the ability to buy, sell, hold, send, and receive a range of crypto-assets, including bitcoin, ethereum, bitcoin cash, and litecoin. Customers can also use the proceeds from crypto-assets sales to pay for purchases at checkout. PayPal provides the option for customers to convert their crypto-asset holdings into fiat currency at a given exchange rate, which, according to PayPal’s terms and conditions, is defined by PayPal. The platform utilises a single third-party custodian to hold customers’ crypto-assets in PayPal’s name in a custodial account. PayPal acknowledges the concentration risk associated with this setup, as stated in the annual report submitted to the U.S. Securities and Exchange Commission for the fiscal year ending 31 December 2022.

The PayPal crypto-asset service was initially introduced in the USA in October 2020, followed by its launch in the UK in August 2021. However, in October 2023, the purchasing of crypto-assets in the UK was temporarily paused until early 2024, to comply with additional UK regulation requirements. However, customers were still allowed to retain or sell previously acquired crypto-assets. Finally, the PayPal crypto-asset service became available in Luxemburg in December 2022.

Table 1. PayPal custody of crypto-assets (in USD MLN).

	30/6/2022	30/9/2022	31/12/2022	31/3/2023	30/6/2023	30/9/2023
Bitcoin (BTC)	326	343	291	499	532	479
Ethereum (ETH)	219	290	250	362	369	316
Other [Litecoin (LTC) and Bitcoin Cash (BCH)]	51	57	63	82	115	82
TOTAL	596	690	604	943	1016	877

(Source: PayPal annual/quarterly reports to the U.S. Securities and Exchange Commission [61]).

and Figure 10 summarise the value of the crypto-assets held by PayPal customers in the USA (for raw data, please refer to Appendix B).

Using the daily prices of the crypto-assets, it is possible to calculate the absolute number of crypto-assets that are in the custody of PayPal (

Table 2. PayPal custody of bitcoin.

Date	30/6/2022	30/9/2022	31/12/2022	31/3/2023	30/6/2023	30/9/2023
Bitcoin (BTC) in PayPal (in USD 10 K)	32,600	34,300	29,100	49,900	53,200	47,900
BTC Price (Close/Last)	19,854.40	19,402.50	16,520.30	28,562.00	30,393.80	27,033.10
Number of BTC in PayPal (based on Close/Last price)	16,419.53	17,678.13	17,614.69	17,470.77	17,503.57	17,719.02

(Source: PayPal annual/quarterly reports to the U.S. Securities and Exchange Commission [61]).

and Figure 11, specifically for bitcoin).

The value (in USD) of the bitcoins safeguarded for PayPal customers is closely aligned to the fluctuations in the bitcoin price. This results in an almost constant absolute number of bitcoins throughout the period covered by the reports. This lack of variation in the number of crypto-assets may evidence a lack of their use in/for payments and may prove that customers see crypto-assets as investments rather than as a means of payment. A similar, though milder trend, is observed for ethereum (

Table 3. PayPal custody of ethereum.

Date	30/6/2022	30/9/2022	31/12/2022	31/3/2023	30/6/2023	30/9/2023
Ethereum (ETH) in USD m	219	290	250	362	369	316
ETH price (Close/Last)	1065.10	1328.07	1192.06	1827.24	1919.41	1673.28
Number of ETH in PayPal (based on Close/Last price—in K)	205.61	218.36	209.72	198.11	192.25	188.85

(Source: PayPal annual/quarterly reports to the U.S. Securities and Exchange Commission [61].)

and Figure 12).

Litecoin and bitcoin cash are presented in aggregate in the reports. It is therefore not possible to extract the absolute numbers by their respective price. All the amounts/values previously presented refer to the custody of the crypto-assets owned by PayPal customers. It is not clarified within the reports which amounts/values were used for payments. However, since PayPal is an online payment solution, at least a fraction of the crypto-assets purchases may have been intended for prospective payments (when potentially their value could have risen more), and not solely for investment. The relatively flat curve for the number of crypto-assets, especially of bitcoin, over a 15-month period is worth examining in further detail. A potential explanation could be that the initial purchases of crypto-assets were not followed by sales or they were not used for payments. Alternatively, the initial purchases of crypto-assets were used for sales and/or payments, but the recipients of the crypto-assets were also in PayPal, so the total value was not affected. In August 2023, PayPal launched its own stablecoin, namely PayPal USD (PYUSD). According to PayPal, the PayPal USD stablecoin is fully backed by US dollar deposits, short-term US treasuries, and similar cash equivalents, and can be redeemed for US dollars at a ratio of 1:1 [62]. Initially, it was made available to eligible US PayPal customers and could be used for payments. In March 2024, PayPal announced that the users of its overseas money transfer app Xoom [63] would pay no fees if they used PYUSD to fund their transfers, in an effort to favour its use for international remittances.

6.2. Google Pay and Apple Pay

Google Pay [64] and Apple Pay [65] are mobile payment services offered by Google and Apple, respectively, that allow users to make payments, both online and in person. Both Google Pay and Apple Pay encapsulate the underlying payment method [66], e.g., debit or credit card, by sending a virtual account number to the payee and not the actual card number. They are available in many countries around the globe, including all EU countries [67]. Google Pay and Apple Pay can be used to buy crypto-assets, either on compatible crypto exchanges, e.g., Coinbase [38,68] or Binance [30,69], or on crypto payment gateways, e.g., BitPay [33,56]. Moreover, payments can be made with crypto-assets by the following:

• Linking to a crypto debit/credit card, e.g., Coinbase card (VISA debit card) [70], BitPay card [71], Venmo credit card (VISA credit card) [72], or Bakkt card (VISA debit card) [73]. When such payments are processed, the crypto-assets spent are converted to fiat money.
• Using a payment gateway. A user makes a payment by connecting a Coinbase Commerce account to a bitcoin wallet, and then choosing bitcoin and Google Pay at the online checkout of a merchant that accepts bitcoin payments through Coinbase Commerce. Google Pay then sends the payment to Coinbase Commerce, which processes the bitcoin transaction and credit the merchant’s account.

Crypto cards are available worldwide with different terms. For example, a Coinbase card is available in the EU [74], but does not support all the features that are available in the US, such as the cashback feature, while the BitPay card is currently available to US residents only. Since early 2023, Google has allowed users to pay for cloud services with crypto-assets [75]. This fact may be an indication of a potentially wider future inclusion of crypto-assets in Google Pay. Apple offers the Tap to Pay feature in the iPhone, which allows merchants to receive contactless payments from credit or debit cards, Apple Pay, and Apple Watch [76]. This requires only an iPhone on the merchant’s side and no additional terminals or hardware. Since Apple Pay supports crypto cards, as mentioned above, this means that customers can make physical contactless payments to merchants using crypto-assets. It should be noted that the Tap to Pay feature is currently available in selected countries only, including the USA, the UK, and only in France and Netherlands in the EU.

The relevant statistics indicate a considerable level of Google Pay and Apple Pay adoption at a global level (

Table 4. Use of Google Pay and Apple Pay for online payments or at POS.

Google Pay			Apple Pay
Country	Stores, Restaurants, or Other POS	Online	Country	Stores, Restaurants, or Other POS	Online
India	83%	79%	United Kingdom	70%	39%
United States	37%	32%	United States	59%	36%
Poland	34%	39%	Canada	63%	32%
Finland	32%	29%	Australia	53%	35%
Germany	31%	16%	France	63%	20%
Italy	30%	18%	Switzerland	40%	32%
Switzerland	29%	27%	Austria	51%	19%
France	29%	15%	Sweden	43%	25%
United Kingdom	28%	23%	Netherlands	41%	21%
Canada	27%	25%	Germany	46%	16%
Spain	27%	25%	Finland	35%	16%
South Africa	26%	26%	Italy	35%	13%

Source: Google Pay use per country 2023|Statista (November 2023); Apple Pay use per country 2023|Statista (November 2023) [77]. Percentages refer to the share of respondents who used mobile payments.

). It should be noted that, although they are relevant for illustrating the level of adoption, these numbers do not illustrate actual payments made with crypto-assets at this point in time.

7. Concluding Remarks

In this paper, we explore the current use of crypto-assets for payments, taking into account mostly unbacked crypto-assets, while only referring to crypto-assets that are stablecoins where specifically mentioned, trying to answer the related questions that form the topic of crypto-asset-based (retail) payments: (a) which crypto-assets are used for (retail) payments, (b) why and how are crypto-assets used for (retail) payments, (c) where are crypto-assets used for (retail) payments, and (d) who uses crypto-assets for (retail) payments.

Our analysis thus provides rich evidence on various dimensions and indicates that the market for crypto-assets is volatile and fragmented, and that crypto-assets are mostly used for speculative purposes rather than for payments. Specifically, although crypto-assets, such as bitcoin, were originally intended to be used for payments in general, their price volatility seems to have prevented them from being broadly used for this purpose in practice. Indeed, this analysis shows a particularly low (and in specific cases stable) use in practice of these unbacked crypto-assets via the various available methods, i.e., crypto-asset payment protocols and gateways. Furthermore, this study of the literature shows that although crypto-assets can be used to pay in many shops and restaurants and to make peer-to-peer payments via multiple ways, the most prominent use cases for using crypto-assets as payments are the following: (i) micropayments, (ii) streaming, (iii) instant settlement for tokenised assets, and (iv) cross-border payments. We note that when used for payments, crypto-assets are oftentimes converted into fiat money. This means the actual payments are not made using crypto-assets. At the same time, our analysis regarding the payers shows that crypto-assets are predominantly held by younger age groups and this may hint at a potential broader adoption in the future.

Despite the current low volume of examined crypto-asset-based payments, this study of the ways to pay with crypto-assets and their adaption shows that the rise of DeFi protocols and collaborations between crypto exchanges and payment firms has expanded the usability of crypto-assets in everyday transactions. Moreover, the greater presence of cPOSs and cATMs in several countries may indicate that both merchants and customers are interested in offering and using crypto-assets for payments. However, the data for PayPal show an almost constant quantity of bitcoins and ethereum held by PayPal users throughout 2022 and 2023. This may evidence their lack of use for payments and may prove that users hold them for reasons other than as a means of payment or, alternatively, that the payees kept the crypto-assets in PayPal, so the total amount was not affected. The next steps in this line of research could be to analyse whether the use of crypto-assets for payments, for example using PayPal, is higher when the price of crypto-assets stabilises following a peak. This could indicate that users buy crypto-assets for speculative reasons and only use them for payments after they have realised a capital gain.

Due to the lack of official data regarding the use of crypto-assets, we have based our analysis on a combination of data from various publicly available sources and studying the developments and trends in this field. One such trend is the fact that some payment service providers are developing and integrating stablecoins into their services. The most relevant example is PayPal’s launch of its own dollar-pegged stablecoin (PayPal USD). Given that PayPal operates akin to a big tech entity, in that it is deeply integrated into online commerce, with an extensive global customer base and expansive operations, it could easily and quickly scale up the use of its stablecoin.

We thus note that the current developments towards interoperability and integration with existing financial infrastructures, in combination with the entering into force of the MiCAR and other international regulatory developments, such as the current ones in the US, could potentially increase the interest in owning and using crypto-assets that qualify as stablecoins. Looking ahead, factors, such as regulatory approval, technological advancements, and expanding use cases, could drive the adoption of crypto-assets for payments. However, this would require overcoming a number of challenges, such as high volatility and lack of legal settlement finality. While payment protocols aim to address these issues, a broader adoption of crypto-assets also depends on regulatory factors.

We believe that fostering a clear understanding of the developments around crypto-asset payments and monitoring the various degrees of adoption throughout different markets could contribute to identifying the broader implications of using crypto-assets in the payment ecosystem and in maintaining the integrity and stability of the financial system. Our work aims to provide a basis for understanding the domain via various dimensions that need to keep being explored by the interested authorities and other stakeholders, keeping in mind that to achieve a thorough and comprehensive analysis of the domain, it would be useful to improve the quality of the data collected and to enhance data sharing protocols, as well as to establish monitoring capabilities that are in line with the MiCAR requirements.