The first half of 2021 saw cryptocurrencies go from theoretical speculation amongst circles of computer geeks to a popular dinner conversation topic with a much more diversified pool of investors. Whether you deem this asset class as viable over the long-term or the purest form of bubble just waiting to burst, the sheer growth alone dictates that this is not a monetary system you can ignore any longer.
No doubt you’ve read on your own time about bitcoin, ethereum, dogecoin, cardano, litecoin, filecoin, chainlink and a plethora of other digital coins. Now is the time to consider how to operationalize these emergent aspects of what’s being called ‘Web 3.0’. That is, how do these coins affect your hotel? More specifically, would you 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 US 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 ten 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.
Larry and Adam Mogelonsky represent one of the world’s most published writing teams in hospitality, with over a decade’s worth of material online. As the partners of Hotel Mogel Consulting Limited, a Toronto-based consulting practice, 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 books “Are You an Ostrich or a Llama?” (2012), “Llamas Rule” (2013), “Hotel Llama” (2015), “The Llama is Inn” (2017), “The Hotel Mogel” (2018) and “More Hotel Mogel” (2020). You can reach Larry at firstname.lastname@example.org or Adam at email@example.com to discuss hotel business challenges or to book speaking engagements.
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