Your Friendly, Neighborhood Super-Money: Could Cryptocurrencies Save the Main Street?

Executive Brief

For decades now, Main Street has been suffering what has seemed to be terminal decline. Stores and shops throughout much of the developed world have been slowly going dark as prohibitive rent costs and relentless competition from online stores has driven many independent retailers out of business. While many would assume that cryptocurrency has little relevance to this complicated economic and social problem, there are others who believe that digital money may offer a much-needed solution to the woes of main street retailers.

By mitigating the costs of banking, third-party transaction management and providing cheap credit, while taking advantage of the tax advantages offered through the attempts of some governments to encourage digital currency business, cryptocurrencies may provide an opportunity to lower the costs associated with sales in a physical retail space – enabling stores to pass those savings on to consumers. With price remaining a dominant factor in consumer purchasing decisions, this may be the secret to reviving the fortunes of the small businesses which form the bedrock of most major economies.

Read the full story below. 

When the Emperor Napoleon described Britain, with more than a little contempt, as a ‘nation of shopkeepers’, he thought it was a grievous insult. He was wrong. While shopkeepers in eighteenth-century France were typically viewed as a sedentary bourgeoisie underhandedly short-changing the masses, a more liberal British attitude recognized their proliferation of shops as the expression of an affluent middle class with disposable income and the freedom to establish, run and maintain a small business, enabling social mobility. This ideal rapidly spread to the rest of the world to such an extent that small businesses – cafes and restaurants, independent retailers, craft manufacturers and the like – have now become the bedrock of most developed economies. It is estimated that there are some 125 million registered Small and Medium Enterprises (SMEs) around the world, employing less than 250 people each.

But those numbers mask a real cause for concern related to Main Street businesses in the western world. For half a century now the developed world has seen greengrocers, fishmongers, butchers, and confectioners lose out to large chain supermarkets and convenience stores. But now even the seemingly immovable stalwarts of Main Street are beginning to lose their footing. Bookstores, boutique clothing retailers, travel agents, and others are quickly losing ground to their online counterparts. This lost custom, added to prohibitively high rents in major cities, has resulted in what would appear to be a terminal decline in the number of traditional brick and mortar retailers.

While it is clear that there is still a demand for the experience of physical shopping, it has become all but impossible to compete with the variety, convenience, and low costs found on the internet. This has given rise to a new breed of consumers: it is becoming increasingly common for shoppers to visit physical retail spaces to try out items – read a few pages of a book, sample make-up or perfumes, see if they can still fit into a size 12 – and to enjoy the physical ‘retail experience’, only to return home to actually buy the items at a lower price online. It is clear that, however enjoyable consumers find the experience of shopping on Main Street – and consumer surveys regularly confirm that shoppers lament the loss of physical retail spaces - the fact is that price is still the ultimate driver in consumer spending decisions.

It might be imagined that this issue cannot possibly be related to the cryptocurrency revolution, even less that digital money could be a solution to the rapidly deteriorating health of independent retailers. But the fact is that the cryptocurrencies have the potential to provide benefits that extend well beyond the online marketplace.

While online stores will always be cheaper to manage than physical retail spaces (after all, domain names cost substantially less than shop premises), many of the other advantages they enjoy over brick and mortar retailers can be negated. Major multinational online retailers like Amazon and eBay are not tied to any one location, and so can take advantage of advantageous tax regimes outside of the market in which they predominantly sell: the recent controversy over Amazon’s UK tax affairs, which see it pay only £11.9 million ($18 million) in tax on £5.3 billion (about $8 billion) of UK profit, by re-routing its profits through tax-havens like Luxembourg, demonstrates the advantage that can be gained. With some governments seeking to encourage cryptocurrencies through low taxation and regulation, it is possible for independent retailers to increase their profit margins by accepting cryptocurrencies rather than conventional money. In the UK, where cryptocurrency transactions are exempted from Value Added Tax (VAT), this may be worth up to 20% extra in profit per transaction.

The use of cryptocurrencies also allows independent retailers to dispense with the long-customary charges on credit and debit card transactions that third party banking services impose. In addition, retailers who opt to store value in cryptocurrencies can avoid the costs associated with the conventional banking processes. Digital money also appreciates in value much more rapidly than fiat currencies, allowing businesses to take advantage of a stable and secure investment that can help them incrementally increase the value of their profits.

The already accepted benefits of cryptocurrencies will also have a disproportionate effect on Small and Medium Enterprises. The relative security of digital money from inflation in fiat currencies can protect independent retailers from the exaggerated impact inflation usually has on them. Meanwhile, the prospects of cryptocurrencies for providing affordable credit to the underbanked may be mirrored in the provision of credit to small businesses, promoting expansion and diversification.

While concern for the future of Main Street will continue for the foreseeable future, the potential impact of the cryptocurrency revolution on Small and Medium Enterprises could be enormous. But shoring up such businesses against the uncertainties they suffer thanks to online retailers and continuing global economic woes will have a broader impact than just promoting wealth creation; studies frequently suggest that a healthy SME sector promotes economic growth and revitalizes local communities.

The views expressed by the authors on this site do not necessarily represent the views of DCEBrief or the management team.

Author: Chris Cooper

Chris Cooper is a doctoral researcher in ancient economic history at Merton College in the University of Oxford. His AHRC-funded research examines transaction costs in the ancient world, and the impact of the invention of money. But while Chris specializes in the cultures that created money in the first place, he is equally interested in digital currencies and their impact on modern societies, cultures, trade-flows and laws.

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