There has been a lot of rumor and speculation circulating in the crypto and mainstream media recently regarding e-commerce giant Amazon moving into the crypto-space by accepting select cryptocurrencies as payment options. While it's a virtual certainty Amazon will soon start doing that in some manner, Amazon's crypto aspirations seem much bigger and could positively impact small-business owners in the near future.
To be clear, Amazon is already deep into the cryptocurrency space. Don't believe me? A quick check of its website proves it.
Amazon is already experimenting with crypto.
Amazon Web Services (AWS) is the company's global, cloud-based, infrastructure platform online. Thousands of companies pay Amazon billions each year to "rent" access to that network rather than building their own.
Amazon's AWS is also the network backbone for a broad segment of the existing cryptocurrency universe. The blockchain descriptor page for Amazon shows that AWS currently supports "25 percent of all Ethereum workloads in the world." Ethereum is the second-largest cryptocurrency by market capitalization directly behind Bitcoin. But Ethereum is more than digital money.
As of this writing, more than 2,400 decentralized applications--Dapps for short--are built on the Ethereum blockchain. These Dapps are kind of like apps on your mobile phone. They're designed to touch and improve many aspects of life, including data security, insurance, physical property, social media, music, movies, health information, identity, marketplaces, finance, gaming, bill payment, as well as many others.
For instance, you likely know and have heard about non-fungible tokens (NFTs), but what you may not know is that nearly the entire NFT environment from concept-to-commerce runs on the Ethereum blockchain network. That network also has a digital currency called Ether, which has faster payment transactions than Bitcoin, and is moving to a more ecofriendly method of crypto-mining than Bitcoin.
This week Ethereum made several major programming upgrades to its network-- known as the "London hard fork"-- which will significantly lower transactions fees and make it a deflationary asset. These upgrades further increase the utility and value of Ethereum. Ethereum has a lot going for it, and Amazon AWS is currently the underlying bedrock of the Ethereum ecosystem.
DeFi: The future of small-business banking and finance.
One of the fastest areas of Ethereum growth is something called decentralized finance-- DeFi for short. DeFi is an alternative to traditional banking and finance. DeFi is a system where blockchain-based software--smart contracts for short--allows direct peer-to-peer buying, selling, lending, and borrowing without bankers or brokers in the middle taking a piece.
Entrepreneurs and small-business owners around the world are taking advantage of DeFi benefits now. Those benefits include:
- lower transaction fees;
- lower closing and settlement costs;
- streamlined applications;
- loan approvals in hours, instead of weeks;
- flexible loan terms;
- ability to collateralize crypto assets;
- access to global funds;
- no "banking hours" or holidays, because DeFi markets are always open 24/7/365; and
- opportunity to earn higher interest rates on cryptocurrencies you loan.
Getting a DeFi loan for your small business is barely more challenging than placing a dinner order with GrubHub. Right now, the equivalent of $72 billion U.S. is locked into decentralized finance Dapps, and more than 93 percent of all those DeFi Dapps run on Ethereum.
What amazon could offer soon.
All said, I believe Amazon will likely ease into accepting certain crypto payments for its retail web store before the end of 2021. The move could save Amazon hundreds of millions annually in credit card processing fees and significantly reduce exposure to credit card chargebacks, and blockchain payments would reduce fraudulent transactions.
That's all great, but here are some things to consider that suggest Amazon's crypto aspirations are much bigger.
Amazon already has its own digital currency.
You may not know it, but Amazon currently has a unique digital currency of its own that's been around for years. It's called AmazonCoins. While the tokens can currently be used only for Amazon-hosted gaming and apps, it already exists and has traction within the Amazon ecosystem. The way I see it, expanding it into a loyalty token for Amazon Prime members and then launching some version of it publicly is very likely.
Amazon has a vast network of early adopters.
According to Statista, Amazon has 250 million Prime members globally as of Q1 2021. Prime is Amazon's premium membership platform that auto-renews at $119 every year. Members get free two-day delivery on all Prime items as well as free access to select Prime entertainment content such as movies, TV shows, music, e-books, and more. Prime members tend to be early adopters and supporters of all things related to Amazon. Many would likely embrace a cryptocurrency coin/token or blockchain if Amazon launched it.
Amazon is known and trusted globally.
Next, Amazon is one of the most trusted brands in the world, currently at No. 5, according to the most recent annual ranking conducted by Morning Consult. In this ranking, Amazon is more trusted than Visa or Mastercard and is only three spots behind PayPal. A quarter-billion Prime members already trust their credit cards with Amazon. A "trusted" Amazon DeFi suite of services might be a welcome alternative to many customers who are tired of bank fees, invasive credit checks, fractional interest rates, and long settlement timelines.
Amazon has a history of disrupting industries.
Lastly, the AWS page has a paragraph that should make JPMorgan CEO Jaime Dimon and every other banking executive quake in their Ferragamo loafers because it reads:
AWS provides purpose-built tools to support your distinct needs, whether you need a centralized ledger database that maintains an immutable and cryptographically verifiable record of transactions, or a multi-party, fully managed blockchain network that helps eliminate intermediaries.
If Amazon can "eliminate intermediaries" for its blockchain clients, what's to stop it from eliminating intermediaries (i.e., banks, lending institutions, insurance companies, brokers, etc.) for its own DeFi, cryptocurrency exchange, blockchain, or digital coin offerings? Small-business owners could benefit greatly from a trusted, established DeFi disrupter to traditional banking.
Amazon has already disrupted--and continues to disrupt--several industries including: cloud computing, book stores, big box retailers, web hosting, entertainment, pharmacies, grocery stores, trucking, and home delivery. Why not banking and finance next?
Disclosure: This column's author has holdings in Bitcoin, Ethereum, Cardano, and XRP.