Many call it a bubble; others are outright evangelists; most are probably just dipping their toes in the crypto waters because they don’t have the time to properly research how it works. We’re not asking you to read Satoshi Nakamura’s or Vitalik Buterin’s respective white papers, but rather to consider a scenario where cryptocurrencies are indeed here to stay, and your property must now accept them as forms of payment in order to appease the millennial and centennial ‘whales.’
First to know is that this is kind of still the Wild West of blockchain-based cryptographic currencies, including bitcoin, ethereum, dogecoin, cardano, polkadot, litecoin, filecoin, chainlink and a plethora of other digital coins. Nevertheless, now is the time to consider how to operationalize these emergent aspects of what’s being called ‘Web 3.0.’ If they are here to stay, how do these coins affect hotel operations? More specifically, would you or would you not accept payment for a hotel reservation in the form of a cryptocurrency?
The first aspect for consideration has nothing to do with quotidian transactions per se, but with balance sheet decisions at the ownership level. At its core, bitcoin, the most popular and oldest crypto is not designed to be money but digital gold—a store of value that’s left in a vault and you simply ‘point’ to it as a means of, for example, securing a line of credit in some other liquid form. In this sense, hotel owners can make a reasonable case—in line with numerous other large cap companies—to treat established cryptos like gold and allocate a portion of their cash reserves or quarterly net profits to these assets both as an investment and as a hedge against pandemic-related hyperinflation.
Second is for all senior managers to understand the technologies that power digital coins (which also helps to explain why certain cryptos like bitcoin are akin to digital gold and not digital cash) because they have applicability beyond just payments and wealth accrual. Think loyalty program incentivization and, in the era of COVID-19 craziness, blockchain-verified vaccination records. A word of caution here is that grasping how these hyperledgers work—algorithmic hashing calculations, mining, proof of work, proof of stake, gas fees and so forth—is not something one can learn in a day, so best to start now, at least intermittently, in order to have some working knowledge prior to when it becomes necessary.
As it relates to the third and final consideration, let’s unpack this cash versus gold utility regarding whether or not to accept payments in cryptocurrency. Paper money works because it’s fast (you hand it over on the spot) and portable (lightweight and fits in your pocket), and because you inherently trust the government behind it. Similarly, a centralized credit card processor such as Visa or Mastercard has built up the infrastructure over several decades to be able to handle thousands of transactions per second and diligently mediate disputes, thereby making these systems great for regular payments.
On the other hand, Bitcoin and Ethereum (capitalized here to denote the platforms and not the coins themselves) are setup to have per-second processing rates that are several orders of magnitude smaller. This is because the algorithmic calculations required to verify transactions and add them to the block require huge amounts of computational energy; it’s simply untenable to move at the same pace as a major credit card company. The difference is that blockchains are ‘trustless’ whereby, in lieu of putting your faith in a centralized authority like American Express or the U.S. Government, every node powering the chain must approve of the transaction in order to adjoin the new block.
As of right now, the infrastructure doesn’t really exist for digital coins to be utilized for day-to-day payments by the average person. Can you imagine waiting 10 minutes for the next block to be added to the Bitcoin chain in order to authenticate a customer’s hotel room payment and settle their folio? This is only appropriate when the purchases are large and infrequent like a car or house.
Instead, there are a handful of cryptos, stablecoins (that is, cryptos fixed or tethered to a given fiat currency), rollup solutions (for off-ledger or second-layer transactions) and central bank digital currencies (CBDCs) that are emerging as blockchain-verified methods for everyday transactions. Once these are widely available, you can then expect a full range of wares both hard and soft that will support rapid bill settlements while also automatically converting from whichever digital coin the consumer has into your desired unit of account. Concurrently, however, you can also expect some younger guests to demand that your hotel to enable digital coin transaction.
So, to circle back to the question posed in the title, should your hotel accept cryptocurrency payments? The short answer is not yet.
The real answer is that we are at a crossroads and there could be a strong first-mover advantage for whichever hotel brand decides to be the forerunner into this space. True, there may be some backlash from people citing the energy consumption of cryptocurrencies and their contribution to global warming, along with some acrimonious remarks from the taxmen. But such a hospitality organization would endear itself to a host of globetrotters who also happen to be crypto investors looking for hotels that are amenable to these alternate forms of cash.
Ultimately, what we stress is to spend some time learning about blockchains and cryptocurrencies. Yes, there’s a lot of hype, but that doesn’t mean they are going away. And that presents an opportunity to grow another revenue vertical ahead of the competition.