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24th January 2025

How a Crypto Payment Gateway Works and What It Is

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crypto
payment gateway
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Anyone familiar with credit card payment processing knows that a payment gateway is one of the important components of a standard payment processing network. This is one of the key concepts to understand in any software development project that requires payment processing. 

Just like in credit card transactions, a crypto payment gateway is a vital component of a crypto payment system. With cryptocurrency fast becoming one of the most commonly accepted payment methods on most online platforms, understanding how a crypto payment gateway works is of great importance. 

This post explains what a crypto payment gateway is and how it works for anyone looking at the possibility of offering cryptocurrency as a payment option. 

  • Crypto payment gateways allow businesses to accept Bitcoin and other cryptocurrency transactions as payment for goods and services.
  • A crypto payment gateway acts as an intermediary between merchants and their customers facilitating seamless payment processes.
  • Cryptocurrency payment gateways offer many benefits over traditional alternatives including the ability to easily accept cryptocurrency payments, faster transactions with lower transaction fees, security, and cross-border payment possibilities.
  • Challenges associated with crypto payment gateways include transaction fees, technical complexity, and compatibility issues. 

What Is a Crypto Payment Gateway?

A crypto payment gateway is an online payment processing system that enables merchants to accept cryptocurrency payments for their products or services. Examples include PayPal, BitPay, and Coinbase Commerce.

These systems act as a bridge between the blockchain network of the customer and that of the vendor (or merchant). Crypto payment gateways work as a secure and streamlined channel for processing crypto payments by facilitating the transfers of payments from one cryptocurrency wallet to another. 

In addition to this core function, crypto payment processors are also responsible for transferring sensitive wallet-related data from the payer to the merchant’s software. The payment gateway is responsible for converting the digital currency payments received from the payer into the merchant’s preferred currency and depositing it directly into their bank account. 

If you’re looking for more information about traditional payment gateways, check out our article on “What Is a Payment Gateway and How Does It Work”.

Features of Crypto Payment Gateways

Cryptocurrency payment gateways are decentralized platforms that utilize blockchain technology to accept crypto payments from customers. This gives them several unique features including security, cross-border capabilities, and the ability to execute financial transactions quickly in real-time. All of these features of crypto gateways are highlighted in greater detail below.

Security

Crypto payment gateways are built on blockchain technology. This makes them highly secure – protecting user transactions and sensitive data on an immutable network. Some of the best crypto payment gateway solutions use advanced security measures such as multi-signature wallets, and advanced encryption protocols. The secure nature of the crypto gateway reduces the risk of fraudulent transactions and data breaches.  

Peer-to-peer Transactions 

Thanks to the decentralized nature of blockchain technology, crypto gateways facilitate direct peer-to-peer transactions with no intermediaries required. This means no banks, card issuers, and other go-betweens involved in conventional financial services. This feature makes crypto payment solutions faster and more efficient compared to traditional alternatives. 

Cross-border Capabilities

Using a cryptocurrency payment gateway allows businesses to accept payments from clients all over the world with no limitations or restrictions. This is one of the main benefits of crypto transactions. Unlike conventional payment systems or financial institutions, crypto payment gateways can be used to receive payment from anywhere. This ability to facilitate global transactions is particularly useful to businesses operating in international markets and need to receive payments from foreign customers. 

Real-time Exchange

Thanks to the lack of intermediaries and blockchain’s attribute of facilitating quick transactions, payment processing with crypto gateways can be extremely fast. Transactions are processed in real time and are completed in less than 10 seconds in most places. Crypto gateways also convert crypto payments to the merchant’s preferred currency within a relatively short period. 

Lower Transaction Costs

Crypto payment gateways cost significantly less than traditional payment methods. This cost-effectiveness makes them an attractive option both for customers who don’t have to pay high transaction fees and merchants who don’t have to lose a percentage of their payments as commissions.

Types of Crypto Payment Gateways

Currently, there are a few kinds of crypto payment gateways available to merchants to choose from. They include DeFi payment gateways and multi-currency gateways. 

DeFi Crypto Payment Gateway 

This is a type of crypto payment gateway that leverages the principles of decentralized finance in its operation. The system is built on blockchain technology, with the payment process automated through smart contracts. 

A DeFi crypto payment gateway operates as a non-custodial system, handling payment processing and transferring funds directly to the merchant’s bank account. It provides users with full control over their funds via private keys and offers ease of use. 

Multi-cryptocurrency Gateways

A multi-cryptocurrency payment gateway processes payments from multiple cryptocurrencies at once. This type of gateway is important for merchants who want to give their customers the freedom to choose their preferred digital currency for making payments. They also help vendors to attract a wider range of customers, including those who might prefer specific cryptocurrencies.

How Crypto Payment Gateways Work

Before you start talking about how to create a payment gateway, you need to unravel how these gateways actually operate. Crypto payment gateways aren’t significantly different from traditional gateways. The only difference here is that they’re powered by blockchain technology, which replaces credit cards (and other conventional payment methods) with digital wallets. Thus, crypto wallets process transactions on a decentralized network, performing data validation and transferring payments from the sender to a unique wallet address. The steps for this transaction are highlighted below.

Step 1: Payment initiation 

The first step in crypto payment processing is transaction initiation. The customer selects crypto as a payment option during checkout. This takes them to the payment gateway via an external payment link or integrated interface. 

Step 2: Payment request generation 

The payment gateway generates a payment request, prompting the user to enter the amount they want to deposit in crypto and generate the unique wallet address to pay into. The wallet address may also be presented in the form of a QR code which the customer scans to pay. The gateway will also generate a unique identifier for the transaction. 

Step 3: Transaction confirmation 

After making the payment, the gateway records the payer’s data, encrypts it, and sends it to the merchant’s web server, which will then display a confirmation message for the transaction. 

Step 4: Settlement and funds transfer 

The funds are transferred to the merchant’s account. Depending on whether the gateway is custodial or non-custodial, the payment is either held in the merchant account on the payment gateway or converted and sent directly to the merchant’s bank. 

Looking to integrate a crypto payment gateway?
We’ve got you covered! From understanding how it works to seamless integration, our experts are here to guide you every step of the way.

Benefits of Using a Cryptocurrency Payment Gateway

  • Eliminates intermediaries 
  • Easy integration 
  • Enhances security 
  • No chargebacks 
  • Faster transaction processing 

Eliminates Intermediaries 

A crypto payment gateway allows vendors to accept payments directly from their customers. Unlike traditional payment processing with multiple intermediaries such as card issuers, merchant banks, and the payment network, crypto gateways have no intermediaries. 

Easy Integration 

Cryptocurrency payment gateways are designed to be super easy to integrate. Vendors can either integrate the gateway as a plugin on their app or website or use external payment links embedded on their payment pages. 

Enhances Security 

Crypto payment gateways are protected with blockchain technology and advanced encryption protocols. This ensures that transactions are immutable while also reducing the risk of fraud. These security measures protect both the vendors and their customers. 

No Chargebacks 

This is one of the most common problems faced by merchants that process online transactions. They have to pay chargebacks and process refunds if buyers request them. With crypto gateways, there is no room for chargeback and refunds. 

Faster Transaction Processing 

Crypto transactions are processed faster and more efficiently. Once the payment is processed, merchants can settle it immediately. This reduces the risk of slippage which is what happens when the market rate for a token suddenly drops while it is still waiting to be verified. 

Benefits of cryptocurrency payment gateways

Challenges of Payment Gateways

The payment gateway is one of the most important parts of any crypto payment processing system. While it has several benefits as highlighted above, it also comes with limitations and challenges, which are listed below.

  • Transaction fees
  • Integration
  • Compatibility issues

Transaction Fees

A payment gateway is a third party in cryptocurrency transactions. As such, they receive a small fee for their services. Although this is significantly less than what you would have to pay for traditional transactions, the extra fee is still considered a challenge since it is deducted from the merchant’s profit or passed on to customers. 

Integration

Integrating cryptocurrency payment processors requires some level of technical proficiency. While these platforms are designed to be easy to use, you will still require the services of an expert with good knowledge of blockchain payment technology to integrate a payment gateway API into your website to receive digital assets from customers. 

Compatibility Issues

In many cases, the payment gateway has to integrate with older systems or websites, which might raise compatibility issues with the newer technologies that power cryptocurrency payments. Ensuring successful payment and seamless communication between the gateway’s APIs and the business’s existing software infrastructure can be quite challenging. You will need to figure out how to navigate this issue before you start accepting crypto payments since it can lead to errors, delays, and poor user experience.

Industries That Benefit from Crypto Payment Gateways

In recent years, cryptocurrencies have become quite popular as a payment method across various industries. This is due to various benefits such as speed, flexibility, and security. Some of the industries that can benefit significantly from integrating crypto payment gateways into their payment systems include: 

  • Automotive and aerospace industry: Businesses that sell luxury cars, yachts, and private jets need to be able to process large transactions quickly. Such businesses can benefit significantly from the speed, security, and global accessibility that crypto gateways offer.
  • Sports and entertainment: Cryptocurrencies provide a flexible and efficient payment option for fans who want to purchase event tickets or pay for merchandise from anywhere in the world. 
  • Real Estate: A cryptocurrency payment gateway provides a secure and efficient way to handle high-value real estate transactions without going through the hurdles associated with traditional banking systems. 
  • iGaming: Fast-paced and high-risk businesses such as online gaming can benefit significantly from the speed, security, and anonymity associated with crypto transactions. 
  • Software/Tech Services: SaaS companies and other tech service providers can receive payment seamlessly (especially from international clients) with cryptocurrency. 

Security Considerations

Crypto transactions are inherently designed to be more secure compared to more conventional alternatives. However, the introduction of a payment gateway (which is a third party) introduces an extra layer of vulnerability that may be exploited by malicious actors. In a way, integrating a crypto payments gateway into your payment system means you have to rely on the gateway’s ability to secure your transactions, which isn’t always feasible. 

Before settling for a payment gateway, you need to assess the level of security promised by the provider. For instance, some platforms have two-factor authentication features to confirm user identity before proceeding with transactions. This and many other features can assist in fraud prevention in addition to standard encryption protocols that block malicious actors from accessing the system. 

On your own end, you also have to implement robust security measures on your website to secure user data and payment details. This involves using secure data servers, implementing HTTPS protocols, and installing and keeping your security software updated.

Regulatory Compliance and Tax Implications

The cryptocurrency payments industry is still in its developmental phase. Consequently, the regulatory environment and laws guiding the industry are still actively evolving. This has led to uncertainties for businesses that want to implement crypto payment systems. 

Unlike traditional payment systems that are fully under government control and backed by banking institutions, a crypto payment processor is decentralized. Despite this, the best crypto payment gateway is still subject to certain regulatory frameworks such as KYC and anti-money laundry regulations which require them to verify the identity of users and monitor transactions for suspicious activities.  

The same applies to taxation. In some jurisdictions, the sales of goods and services with cryptocurrencies is subject to sales tax which must be applied to each transaction. Businesses also need to keep meticulous records of their transactions for regulatory compliance and taxation purposes. 

Crypto Payments vs Traditional Payments

In comparing crypto payments and traditional payments there are several upsides and downsides to consider on both sides. Generally, crypto payment excels more in terms of speed and security when compared to the old system. Crypto payment gateways require fewer intermediaries, so they’re not subject to the same delays associated with traditional payments. Unlike conventional systems where transactions take hours or even days, most crypto payments are processed within seconds. 

Another common talking point is the difference in costs. Although merchants and customers have to pay some fees in either case, crypto payments are generally cheaper since they require fewer intermediaries to facilitate transactions. Businesses are able to carry out large transaction volumes with crypto without incurring extra costs. 

Crypto payments are also more flexible and accessible to people all over the world irrespective of their location. Anyone with an internet connection can make crypto payments even without access to traditional banking services. It is also possible to implement mobile payment gateway solutions, which allow users to make payments seamlessly on their mobile devices. 

On the flip side, some of the challenges associated with the crypto transaction include the difficulty in integrating this solution because it tends to be more technical compared to traditional alternatives. There’s also the issue of fluctuating crypto prizes, which can change the value of currencies before transactions are settled. On the other hand, traditional payments are stable and mostly unaffected by fluctuations. 

Future of Crypto Payment Gateways

Crypto payment gateways have been contributing to the ongoing cryptocurrency revolution. With more businesses adopting digital currencies as an alternative or supplementary solution for processing payments, we are inching closer to the future mainstream adoption of cryptocurrencies. 

Crypto gateways are renowned for their ability to facilitate smooth transactions and conversions to fiat currency, with almost instant settlements. In the coming years, major technological advancements in the industry such as the rise of decentralized finance, growing interoperability of blockchain and off-chain systems, and smart contract integration will further contribute to the industry’s evolution. 

Additionally, as regulatory frameworks for cryptocurrencies mature, businesses will have a clearer understanding of compliance requirements. This will foster greater confidence and adoption in the coming years. 

Conclusion

Thanks to the growing popularity of Bitcoin and other cryptocurrencies, there’s a pressing need for businesses to adopt crypto payment gateways to receive payments from customers. Implementing the best cryptocurrency payment gateways holds several benefits for your business, especially in terms of quick, seamless, and cross-border payment processing.

An expert software development company like CrustLab can help you navigate the complexities of blockchain integration for your industry. Contact us today to discuss crypto gateway integration for your project. 

FAQ

01. How much does the crypto payment gateway charge?

u003cspan style=u0022font-weight: 400;u0022u003eCrypto payment gateways charge a flat fee per transaction which is typically a percentage of the total value of the processed payment. The top crypto payment gateways charge between 0.5% to 3% when they accept Bitcoin payments depending on the payment gateway platform in question. u003c/spanu003e

02. How much does it cost to develop a crypto payment gateway?

u003cspan style=u0022font-weight: 400;u0022u003eThe exact cost of crypto payment gateway development from scratch depends on the complexity of the project and the customizations required. On average, the cost ranges from about $30,000 for a basic platform all the way up to $300,000 for a complex platform with more advanced features. u003c/spanu003e

03. What is the difference between a payment gateway and a wallet?

u003cspan style=u0022font-weight: 400;u0022u003eA payment gateway is a digital service that processes payments between customers and merchants on an online platform. A wallet on the other hand is simply a place for storing cryptocurrencies or payment information.u003c/spanu003e

04. How does a cryptocurrency exchange gateway differ from a regular payment gateway?

u003cspan style=u0022font-weight: 400;u0022u003eA cryptocurrency exchange gateway facilitates crypto payments while also converting tokens to fiat currencies like USD and EUR. The fiat currency is sent to the merchant’s bank account once the transaction is completed. In contrast, a regular payment gateway enables businesses to accept crypto payments from customers, often sending the payment to the merchant’s crypto wallet without conversion. u003c/spanu003e