The first half of 2021 has seen cryptocurrencies move from theoretical speculation among computer geek circles to a popular topic of dinner conversation with a much more diverse pool of investors. Whether you view this asset class as viable for the long term or the purest form of a bubble just waiting to burst, growth alone dictates that this is no longer a monetary system you can ignore. Longer.
You’ve no doubt read in your spare time about bitcoin, ethereum, dogecoin, cardano, litecoin, filecoin, chainlink, and a plethora of other digital coins. Now is the time to think about how to operationalize these emerging aspects of what is called “Web 3.0”. In other words, how do these rooms affect your hotel? Specifically, would you accept payment for a hotel reservation in the form of cryptocurrency?
The first aspect to consider has nothing to do with day-to-day transactions per se, but with balance sheet decisions at the property 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 sits in a safe and you” simply point to it as a way, for example, to secure a line of credit in another liquid form. In this sense, hotel owners can reasonably – in line with many other large-cap companies – 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, all senior executives need to understand the technologies that power digital coins (which also helps explain why some cryptos like bitcoin are akin to digital gold and not digital cash) because they have applicability beyond just payments and wealth accumulation. Think of the incentive for the loyalty program and, in the age of COVID-19 madness, blockchain-verified vaccination records. A word of warning here is that understanding how these hyperledgers work – algorithmic hash calculations, mining, proof of work, proof of stake, gas fees, etc. – is not something you can learn in a day, so it’s best to start now, unless intermittently, so you have some practical knowledge before it becomes necessary.
As for the third and final consideration, let’s unpack this cash-for-gold utility regarding whether or not to accept cryptocurrency payments. Paper money works because it’s fast (you put it back in place) and portable (lightweight and fits in your pocket), and because you inherently trust the government behind it. Likewise, a centralized credit card processor such as Visa or Mastercard has built the infrastructure over decades to be able to handle thousands of transactions per second and resolve disputes diligently, making these systems perfect for regular payments.
On the other hand, Bitcoin and Ethereum (capitalized here to denote the platforms, not the coins themselves) are set to have order-of-magnitude lower processing rates per second. This is because the algorithmic calculations needed to verify transactions and add them to the block require huge amounts of computational energy; it is simply unsustainable to keep pace with a large credit card company. The difference is that blockchains are “trustless” in which, instead of trusting a centralized authority like American Express or the US government, each node powering the chain must approve the transaction in order to join the new block.
Right now, the infrastructure doesn’t really exist for digital coins to be used for everyday payments by the average person. Can you imagine waiting ten minutes for the next block to be added to the Bitcoin chain in order to authenticate payment for a guest’s hotel room and settle their folio? This is only appropriate when the purchases are large and infrequent, such as a car or a house.
Instead, there are a handful of cryptos, stablecoins (i.e. cryptos that are fixed or pegged to a given fiat currency), stacking 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 both hard and soft merchandise that will support fast bill payments while automatically converting the digital coin the consumer has into the desired unit of account. At the same time, however, you can also expect some younger guests to ask your hotel to enable the digital coin transaction.
So, going 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 first mover in this space. To be sure, there can be backlash from people citing the power consumption of cryptocurrencies and their contribution to global warming, as well as acrimonious remarks from tax officials. But such a hotel organization would endear itself to a host of globetrotters who also happen to be crypto investors looking for hotels that lend themselves to these alternative forms of money.
Ultimately, what we emphasize is spending time learning about blockchains and cryptocurrencies. Yes, there’s a lot of hype, but that doesn’t mean they’re going away. And that presents an opportunity to develop another revenue vertical ahead of the competition.
Larry and Adam Mogelonsky represent one of the world’s most published hospitality writing teams, with over a decade of material online. As partners of Hotel Mogel Consulting Limited, a Toronto-based consulting firm, Larry focuses on asset management, sales and operations while Adam specializes in hotel technology and marketing. Their experience encompasses properties around the world, both branded and independent, and ranging from luxury and boutique to select service. Their work includes six “Are You an Ostrich or a Llama?” (2012), “Lamas Rule” (2013), “Hotel Llama” (2015), “The Llama is Inn” (2017), “The Hotel Mogel” (2018) and “More Hotel Mogel” (2020). You can contact Larry at [email protected] or Adam at [email protected] to discuss hospitality challenges or to book speaking engagements.
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