Is the Payments Industry Really Ready For Bitcoin?
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“[A] peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution,” that’s how the pseudonymous
Satoshi Nakamoto
Satoshi Nakamoto
“Satoshi Nakamoto” is the alias of the mysterious person (or group of people) that are responsible for the creation and launch of Bitcoin back in 2009 and the authorship of the Bitcoin whitepaper, published in 2008. As such, Satoshi Nakamoto is also the entity who conceptualized and created the first-ever blockchain network. Nakamoto was the first to effectively solve the double-spending problem for digital currency using a Peer-to-Peer (P2P) network. Nakamoto was active in the development of bitcoin up until December 2010, making all modifications to the source code himself. In 2010, he handed over control of the source code repository and network alert key to Gavin Andresen, and transferred several related domains to various prominent members of the bitcoin community.Who is Satoshi Nakamoto?While Nakamoto claimed on his P2P Foundation profile in 2012 that he was a 37-year-old man from Japan, others speculated that he was from an English-speaking country due to his use of perfect English and the fact that none of his work was documented or labelled in Japanese. Analyses of Nakamoto’s post suggest that his sleeping patterns were most similar to those of people living in the UK, and his use of British English in spelling and terminology have led many to believe that Nakamoto is actually of British origin.Several years after the publication of the Bitcoin network, the entity posting under the name Satoshi Nakamoto disappeared from the internet, never known to publish anything under that name again. However, a few bold actors have claimed to be Nakamoto. There has been much speculation about whether any of these claims could be true. Ultimately, the real-world identity of Satoshi has never been established and remains a mystery to this day.
“Satoshi Nakamoto” is the alias of the mysterious person (or group of people) that are responsible for the creation and launch of Bitcoin back in 2009 and the authorship of the Bitcoin whitepaper, published in 2008. As such, Satoshi Nakamoto is also the entity who conceptualized and created the first-ever blockchain network. Nakamoto was the first to effectively solve the double-spending problem for digital currency using a Peer-to-Peer (P2P) network. Nakamoto was active in the development of bitcoin up until December 2010, making all modifications to the source code himself. In 2010, he handed over control of the source code repository and network alert key to Gavin Andresen, and transferred several related domains to various prominent members of the bitcoin community.Who is Satoshi Nakamoto?While Nakamoto claimed on his P2P Foundation profile in 2012 that he was a 37-year-old man from Japan, others speculated that he was from an English-speaking country due to his use of perfect English and the fact that none of his work was documented or labelled in Japanese. Analyses of Nakamoto’s post suggest that his sleeping patterns were most similar to those of people living in the UK, and his use of British English in spelling and terminology have led many to believe that Nakamoto is actually of British origin.Several years after the publication of the Bitcoin network, the entity posting under the name Satoshi Nakamoto disappeared from the internet, never known to publish anything under that name again. However, a few bold actors have claimed to be Nakamoto. There has been much speculation about whether any of these claims could be true. Ultimately, the real-world identity of Satoshi has never been established and remains a mystery to this day.
Read this Term described Bitcoin.
So, basically, the idea behind Bitcoin is to use it as an alternative mode of payment. Many even call it ‘internet money’.
But, did Bitcoin succeed to become a viable payment option after over a decade of its inception? Or can it even be used for payments?
Well, maybe in the early days when Bitcoin was introduced it was perfect for making small payments. But as the network grew larger and larger, limitations of Bitcoin surfaced. Transaction fees skyrocketed, and users even had to wait for hours for transaction confirmation.
These limitations made Bitcoin almost impossible for retail payments. But that does not mean that the network is a dud. In fact, Cathie Wood-led Ark Investment Management recently said in a report that Bitcoin’s cumulative annual transfer volume in 2021 surged 463 percent to reach $13.1 trillion. It is more than Visa’s number for the period.
Bitcoin’s daily transfer volume also increased five-fold last year $35.9 billion, while its average transaction value jumped six times to $136,555. That average transaction value concludes almost everything, pointing out that Bitcoin is still not ready for small retail transactions.
What is stopping Bitcoin from retail adoption?
Well, the technology is an absolute limitation for Bitcoin’s adoption for payments. The BTC network processes roughly ten transactions per second; Visa and Mastercard are in the order of multiple 1,000s of transactions per second each.
But developers are working on this limitation and have already introduced
Lightning Network
Lightning Network
The Lightning Network is a second-layer payment protocol that operates on top of a blockchain-based cryptocurrency. It enables fast transactions among participating nodes and has been touted as a solution to the Bitcoin scalability problem.This framework features a peer-to-peer (P2P) system for making micropayments of cryptocurrency via a network of bidirectional payment channels without delegating custody of funds.Transactions on the Lightning Network are only added to the blockchain when the two parties that are involved in a payment channel open or close the channel. Therefore, multiple transactions can be sent within a single channel without requiring the consensus of the entire blockchain, making the transaction process considerably faster. Normalized use of the Lightning Network involves the opening of a payment channel by committing a funding transaction to the relevant base blockchain or first layer. This in turn is followed by making any number of Lightning transactions that update the distribution of the channel’s funds without broadcasting those to the blockchain.Additionally, these may or may not be followed by closing the payment channel by broadcasting the final version of the settlement transaction to distribute the channel’s funds.How Does the Lightning Network Affect Everyday Users?For example, one Lightning Network user, Jim, can open a payment channel with a local corner store and deposit $100 worth of Bitcoin in it. Every time he visits the store, he can use his balance to instantly buy whatever he pleases. At the same time, Jane, another Lightning Network user, has opened up a channel with the cafe next to the corner shop. She also buys things from the corner shop. Because Jim has opened a channel with the corner store, Jane can also use the Lightning Network to pay for things there. Similarly, Jim can use the Lightning Network at the cafe.
The Lightning Network is a second-layer payment protocol that operates on top of a blockchain-based cryptocurrency. It enables fast transactions among participating nodes and has been touted as a solution to the Bitcoin scalability problem.This framework features a peer-to-peer (P2P) system for making micropayments of cryptocurrency via a network of bidirectional payment channels without delegating custody of funds.Transactions on the Lightning Network are only added to the blockchain when the two parties that are involved in a payment channel open or close the channel. Therefore, multiple transactions can be sent within a single channel without requiring the consensus of the entire blockchain, making the transaction process considerably faster. Normalized use of the Lightning Network involves the opening of a payment channel by committing a funding transaction to the relevant base blockchain or first layer. This in turn is followed by making any number of Lightning transactions that update the distribution of the channel’s funds without broadcasting those to the blockchain.Additionally, these may or may not be followed by closing the payment channel by broadcasting the final version of the settlement transaction to distribute the channel’s funds.How Does the Lightning Network Affect Everyday Users?For example, one Lightning Network user, Jim, can open a payment channel with a local corner store and deposit $100 worth of Bitcoin in it. Every time he visits the store, he can use his balance to instantly buy whatever he pleases. At the same time, Jane, another Lightning Network user, has opened up a channel with the cafe next to the corner shop. She also buys things from the corner shop. Because Jim has opened a channel with the corner store, Jane can also use the Lightning Network to pay for things there. Similarly, Jim can use the Lightning Network at the cafe.
Read this Term to make smaller BTC payments faster and cheaper.
Regulation Is the Key
One of the primary reasons for the timid BTC support for payments is the lack of regulations. The payments industry is highly regulated, and the companies do not want to upset regulators by supporting Bitcoin, which only has the currency status in one country, El Salvador.
“Although mass adoption of crypto and blockchain isn’t quite here yet, I believe increased regulation could push it to the edge as a widely accepted form of payment. More regulation leads to more guidance, which will provide reassurance for institutional and mass use,” said Rodrigo Vicuna, Chief Financial Officer at Prime Trust.
Despite the regulatory uncertainty, many major companies are already accepting Bitcoin as payment for years. Elon Musk-led Tesla’s decision to accept BTC for its electric cars was probably the most important milestone for Bitcoin payments adoption to date.
But these US companies are accepting the cryptocurrency within a regulatory grey area, as Bitcoin is neither a legal tender in the country nor it is banned.
Bitcoin Is Volatile
Also, the volatility of Bitcoin is another roadblock for using it for payments. No one wants to spend something if its value is expected to rise in a short term or accept something if it is about to crash.
“The news cycle portrays crypto as a volatile investment,” Vicuna added. “Although Bitcoin’s performance reflects the ebb and flow of stocks, some still consider it the Wild West in terms of the nature of the market.”
“Regulatory clarity can rein some of that in with guardrails – leading to greater stability and support. At the end of the day, a regulatory framework for crypto is critical and will help the industry evolve into a lower risk asset class with clear paths toward consumer adoption, including confidence with crypto payments.”
Indeed, when El Salvador provided Bitcoin the status of a legal tender, all businesses in the country are bound to accept the cryptocurrency as payment. To protect their risk exposure the government decided to provide them with the option to convert BTC to USD immediately when the transaction is made.
But, many experts in the crypto industry deny the role of volatility in Bitcoin payment adoption.
“The volatility of cryptocurrencies doesn’t actually matter much in terms of making payments. Software exists that instantly converts one cryptocurrency into a more stable form of currency like fiat (USD, CAD, GBP, AUD). Additionally, people can just use stablecoins as a means of payment, avoiding the volatility that is inherent within coins like Bitcoin and Ethereum,” Keegan Francis, an Investor at The Floatation Centre, said.
But again, who is going to spend Bitcoin if its value is expected to rise in a month or even a day?
Also, for anything to be accepted as payment, consumer trust is an important factor. Fiats have the backing of governments, but when it comes to Bitcoin the entire infrastructure is private. All of its credibility depends on the decentralized structure, but the rampant hacks on crypto platforms only fuel the distrust of such innovative digital currency among both consumers and merchants.
“The future of crypto payments is likely to be multifaceted in the short term. That is, it will take some time for a dominant payment method to arise,” Francis added.
So, Is It a Marketing Gimik?
Despite many limitations, more and more organizations are starting to accept Bitcoin as payment. Even though a very small percentage of the population uses it, the option is still there. Why? Is it only to market Bitcoin so that its value can increase?
“No, I don’t believe it’s another marketing tool,” added Vicuna. “We’ve seen the digital asset industry mature significantly over the past year. From exchange-traded funds to celebrity endorsements, crypto has moved from a niche market of early adopters to more mainstream awareness. It will continue to evolve, but it’s here for the long-term.”
“As we move further into 2022, we foresee an uptick in crypto platforms and apps that provide a better user experience, tighter security, and regulation that will provide safety and comfort around the assets for day-to-day transactions. The sector will continue to see mainstream coverage, attention from retail clients and institutional investors, and a stronger movement toward mass adoption. Lastly, expect to see new use cases emerge internationally – not just the U.S.”
“[A] peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution,” that’s how the pseudonymous
Satoshi Nakamoto
Satoshi Nakamoto
“Satoshi Nakamoto” is the alias of the mysterious person (or group of people) that are responsible for the creation and launch of Bitcoin back in 2009 and the authorship of the Bitcoin whitepaper, published in 2008. As such, Satoshi Nakamoto is also the entity who conceptualized and created the first-ever blockchain network. Nakamoto was the first to effectively solve the double-spending problem for digital currency using a Peer-to-Peer (P2P) network. Nakamoto was active in the development of bitcoin up until December 2010, making all modifications to the source code himself. In 2010, he handed over control of the source code repository and network alert key to Gavin Andresen, and transferred several related domains to various prominent members of the bitcoin community.Who is Satoshi Nakamoto?While Nakamoto claimed on his P2P Foundation profile in 2012 that he was a 37-year-old man from Japan, others speculated that he was from an English-speaking country due to his use of perfect English and the fact that none of his work was documented or labelled in Japanese. Analyses of Nakamoto’s post suggest that his sleeping patterns were most similar to those of people living in the UK, and his use of British English in spelling and terminology have led many to believe that Nakamoto is actually of British origin.Several years after the publication of the Bitcoin network, the entity posting under the name Satoshi Nakamoto disappeared from the internet, never known to publish anything under that name again. However, a few bold actors have claimed to be Nakamoto. There has been much speculation about whether any of these claims could be true. Ultimately, the real-world identity of Satoshi has never been established and remains a mystery to this day.
“Satoshi Nakamoto” is the alias of the mysterious person (or group of people) that are responsible for the creation and launch of Bitcoin back in 2009 and the authorship of the Bitcoin whitepaper, published in 2008. As such, Satoshi Nakamoto is also the entity who conceptualized and created the first-ever blockchain network. Nakamoto was the first to effectively solve the double-spending problem for digital currency using a Peer-to-Peer (P2P) network. Nakamoto was active in the development of bitcoin up until December 2010, making all modifications to the source code himself. In 2010, he handed over control of the source code repository and network alert key to Gavin Andresen, and transferred several related domains to various prominent members of the bitcoin community.Who is Satoshi Nakamoto?While Nakamoto claimed on his P2P Foundation profile in 2012 that he was a 37-year-old man from Japan, others speculated that he was from an English-speaking country due to his use of perfect English and the fact that none of his work was documented or labelled in Japanese. Analyses of Nakamoto’s post suggest that his sleeping patterns were most similar to those of people living in the UK, and his use of British English in spelling and terminology have led many to believe that Nakamoto is actually of British origin.Several years after the publication of the Bitcoin network, the entity posting under the name Satoshi Nakamoto disappeared from the internet, never known to publish anything under that name again. However, a few bold actors have claimed to be Nakamoto. There has been much speculation about whether any of these claims could be true. Ultimately, the real-world identity of Satoshi has never been established and remains a mystery to this day.
Read this Term described Bitcoin.
So, basically, the idea behind Bitcoin is to use it as an alternative mode of payment. Many even call it ‘internet money’.
But, did Bitcoin succeed to become a viable payment option after over a decade of its inception? Or can it even be used for payments?
Well, maybe in the early days when Bitcoin was introduced it was perfect for making small payments. But as the network grew larger and larger, limitations of Bitcoin surfaced. Transaction fees skyrocketed, and users even had to wait for hours for transaction confirmation.
These limitations made Bitcoin almost impossible for retail payments. But that does not mean that the network is a dud. In fact, Cathie Wood-led Ark Investment Management recently said in a report that Bitcoin’s cumulative annual transfer volume in 2021 surged 463 percent to reach $13.1 trillion. It is more than Visa’s number for the period.
Bitcoin’s daily transfer volume also increased five-fold last year $35.9 billion, while its average transaction value jumped six times to $136,555. That average transaction value concludes almost everything, pointing out that Bitcoin is still not ready for small retail transactions.
What is stopping Bitcoin from retail adoption?
Well, the technology is an absolute limitation for Bitcoin’s adoption for payments. The BTC network processes roughly ten transactions per second; Visa and Mastercard are in the order of multiple 1,000s of transactions per second each.
Regulation Is the Key
One of the primary reasons for the timid BTC support for payments is the lack of regulations. The payments industry is highly regulated, and the companies do not want to upset regulators by supporting Bitcoin, which only has the currency status in one country, El Salvador.
“Although mass adoption of crypto and blockchain isn’t quite here yet, I believe increased regulation could push it to the edge as a widely accepted form of payment. More regulation leads to more guidance, which will provide reassurance for institutional and mass use,” said Rodrigo Vicuna, Chief Financial Officer at Prime Trust.
Despite the regulatory uncertainty, many major companies are already accepting Bitcoin as payment for years. Elon Musk-led Tesla’s decision to accept BTC for its electric cars was probably the most important milestone for Bitcoin payments adoption to date.
But these US companies are accepting the cryptocurrency within a regulatory grey area, as Bitcoin is neither a legal tender in the country nor it is banned.
Bitcoin Is Volatile
Also, the volatility of Bitcoin is another roadblock for using it for payments. No one wants to spend something if its value is expected to rise in a short term or accept something if it is about to crash.
“The news cycle portrays crypto as a volatile investment,” Vicuna added. “Although Bitcoin’s performance reflects the ebb and flow of stocks, some still consider it the Wild West in terms of the nature of the market.”
“Regulatory clarity can rein some of that in with guardrails – leading to greater stability and support. At the end of the day, a regulatory framework for crypto is critical and will help the industry evolve into a lower risk asset class with clear paths toward consumer adoption, including confidence with crypto payments.”
Indeed, when El Salvador provided Bitcoin the status of a legal tender, all businesses in the country are bound to accept the cryptocurrency as payment. To protect their risk exposure the government decided to provide them with the option to convert BTC to USD immediately when the transaction is made.
But, many experts in the crypto industry deny the role of volatility in Bitcoin payment adoption.
“The volatility of cryptocurrencies doesn’t actually matter much in terms of making payments. Software exists that instantly converts one cryptocurrency into a more stable form of currency like fiat (USD, CAD, GBP, AUD). Additionally, people can just use stablecoins as a means of payment, avoiding the volatility that is inherent within coins like Bitcoin and Ethereum,” Keegan Francis, an Investor at The Floatation Centre, said.
But again, who is going to spend Bitcoin if its value is expected to rise in a month or even a day?
Also, for anything to be accepted as payment, consumer trust is an important factor. Fiats have the backing of governments, but when it comes to Bitcoin the entire infrastructure is private. All of its credibility depends on the decentralized structure, but the rampant hacks on crypto platforms only fuel the distrust of such innovative digital currency among both consumers and merchants.
“The future of crypto payments is likely to be multifaceted in the short term. That is, it will take some time for a dominant payment method to arise,” Francis added.
So, Is It a Marketing Gimik?
Despite many limitations, more and more organizations are starting to accept Bitcoin as payment. Even though a very small percentage of the population uses it, the option is still there. Why? Is it only to market Bitcoin so that its value can increase?
“No, I don’t believe it’s another marketing tool,” added Vicuna. “We’ve seen the digital asset industry mature significantly over the past year. From exchange-traded funds to celebrity endorsements, crypto has moved from a niche market of early adopters to more mainstream awareness. It will continue to evolve, but it’s here for the long-term.”
“As we move further into 2022, we foresee an uptick in crypto platforms and apps that provide a better user experience, tighter security, and regulation that will provide safety and comfort around the assets for day-to-day transactions. The sector will continue to see mainstream coverage, attention from retail clients and institutional investors, and a stronger movement toward mass adoption. Lastly, expect to see new use cases emerge internationally – not just the U.S.”
Cryptocurrency
