Payment News

Cryptocurrency Mining

China has decided to stop cryptocurrency mining in the interests of financial stability. Mining is the process that validates cryptocurrency transactions by solving cryptographic puzzles in return for receiving newly minted coins. The four main mining regions were Inner Mongolia, Sichuan, Xinjiang and Yunnan.

The ban has had a dramatic effect. The computational power used by mining machines is measured as a ‘hash rate’, and this is reported to have halved in recent weeks. There is also a ‘difficulty rate’ which changes in line with the number of computers involved in mining. This has also fallen to a new low.

The Cambridge Bitcoin Electricity Consumption Index says China used to account for 65% of bitcoins earned through mining but thinks that 90% of China’s mining has stopped. Chinese miners grew so large because China had excess energy available, and it made the computers and specialist chips used for mining. Although the central government was concerned about the loss of financial control, banning cryptocurrency trading in 2017, miners were a good source of tax revenue and fees for local governments.

In addition to promoting financial stability, the ban will have helped reduce emissions since miners are estimated to have used 83twh of electricity a year, about the same as Belgium. There are stories of some of the bigger miners moving their machines overseas to Russia and Kazakhstan which already account for about 13% of the world’s bitcoin mining.

Venmo and PayPal Increase Payment Costs in the US

Venmo has announced in the US that they are increasing fees from 2 August for users who want to move money out of their Venmo account to another account through a debit push payment or the Clearing House Real Time Payment platform. The fee was 1% but will rise to 1.5% and the maximum fee limit will rise from $10 to $15.

Usually, business pays for real time payments rather than consumers. Venmo is owned by PayPal and is used in the US to allow account holders to transfer funds to others using a mobile phone app.

This month Venmo introduced a seller transaction fee of 1.9% plus $0.10 when users receive payments identified by the sender as being for goods and services. This has been introduced in response to people selling personal items online.

Previously people couldn’t use their personal accounts for business. These transactions will qualify for Venmo’s purchase protection plan.

PayPal is also increasing merchant fees from 2 August. Since large merchants can usually negotiate discounted fees, the press has speculated that medium and small merchants will bear the brunt of these increases. The cost of online payments will rise from 2.9%, plus $0.30, to 3.49%, plus $0.49 for PayPal Checkout, Pay with Venmo and Pay in 4. For merchants for a $100 transaction the fee will be $3.98, up from $3.30. Online credit or debit payments will go down from 2.9%, plus $0.30, to 2.59%, plus $0.49. For a $100 transaction, a saving of $0.12.

QR code in-person payments are unchanged. If the transaction is over $10, the rate is 1.9%, plus $0.10. If under $10, 2.4%, plus $0.05. Some in-person debit and credit transactions cost more.

Italy Cancels its Cashback Scheme

Late 2020 during the pandemic the Italian government introduced a scheme to encourage people to pay with cards rather than cash. This was part of its ‘Cashless Italy’ strategy, one part of which was to make tax evasion more difficult. Shoppers were reimbursed up to €150 if they made at least 50 electronic payments after signing up using a government app in a given time. The scheme also included a €1,500 prize for the first 100,000 people who made the most digital payments every six months.

The coalition government has now voted to cancel the scheme, concerned about its effectiveness and abuse of the scheme.

7.85 million people joined the scheme, and 720 million payments were made. There has been criticism that people divided up what would normally be one payment into several smaller payments to increase the number of transactions. 5.89 million people qualified for the €150 payment.

Online Banking Services Affected

Demonstrating the vulnerabilities of our increasing dependence on all things digital, two recent events brought down the cloud-based services driving online banking services, among others things, on a global scale.

First, on 9 June, multiple outages hit social media, government, banking and news websites across the world. The problem was due to an ‘undiscovered’ software bug in the system of Fastly, a content delivery network (CDN) provider, which was rectified within an hour.

More recently, on 22 July, websites and apps were briefly down again sparked by a glitch in the systems of another CDN provider, Akamai Technologies. The disruption, which lasted up to an hour, was cause by an attempted update to the domain name system (DNS) service. Services resumed after rolling back the update, and Akamai confirmed the disruption was not due to a cyberattack.

The multiple outages hit people around the world trying to do banking, book flights and access postal services. Among the websites and apps of those affected were Amazon, Reddit, AirBNB, PayPal, Shopify, eBay, major banks, airlines, gaming and government services.

While both faults were remedied within the hour, they highlight one of the problems of our interconnected internet. Namely, that power in the CDN space is concentrated in the hands of the big three providers – Akamai, Fastly and Cloudflare.

They also highlight our dependence on digital platforms supported by third-party infrastructures, which are prone to bugs or simple human error, for transacting and conducting everyday life.

Cryptocurrency Trade Volumes Lower

The volume of bitcoin trades has dropped 42.3% recently compared with the intra-month high in May. It is assumed that the low of $28,908 in June was caused in part by China's steps to limit bitcoin mining. Even at that low point on 22 June, the traded volume was $138.2 billion, reflecting just how much money is involved.

This reduction in trades was across the largest exchanges – Coinbase, Kraken, Binance and Bitstamp. It appears that this reduction is continuing with the number of new wallets lower.