It’s no secret that Bitcoin (BTC), for both traditional and crypto-finance investors, is viewed as a long-term storehouse of value similar to “digital Gold.” However, in recent years, the crypto’s popularity as a medium for exchange has increased.
Recently, El Salvador’s central bank revealed that more than $50 million worth of remittances were sent by its citizens to family and friends abroad. Douglas Rodriguez, the president of El Salvador’s Central Reserve Bank, stated that $52 million worth BTC remittances were processed through Chivo’s national digital wallet service Chivo in the first five months alone. This represents a 3.9% increase in value and $118 million over the same period in 2021.
Bitcoin’s popularity as a payment medium is on the rise. This can be seen in the increase in adoption of layer-2 payment protocols like the Lightning Network. BTC transaction volumes have increased by 400% in the past twelve months.
It is therefore worth looking into whether Bitcoin’s utility in daily transactions is feasible, particularly from a long-term perspective. Bitcoin still trails other networks such as Ethereum, Solana, and Cardano in key areas like scalability, transaction throughput, and transaction speed.
Is Bitcoin’s utility in payment methods overrated?
Corbin Fraser is the head of financial services at Bitcoin.com and a cryptocurrency wallet developer. He claims that Bitcoin has lost its peer-to-peer (P2P), cash first mover advantage. The reason is that the Bitcoin community has made every effort to inform its users since 2016 that Bitcoin should not be used for payments or remittance-related transactions. He also said:
“Use case for remittance or P2P cash payments are now on other blockchains that have higher throughput and lower fees. Bitcoin will have a hard time reintroducing daily payments to its users, and other communities that are focused on these use cases.
Fraser said that the complexity of the situation increases when you consider the difficulties involved in ordinary crypto users using layer-2 solutions such as the Lightning Network to receive payments. In the last two years, competition in low-fee, high-throughput chains has increased significantly. He said that Bitcoin is a fast-growing cryptocurrency when it comes time to shift focus to daily payments.
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He explained that Bitcoin’s limit of five transactions per second means that if people flock to it for daily transactions, the memory pool will become fuller, pricing out more users and making daily payments more difficult. He stated:
“The system will fail due to both deposits and withdrawals from the Lightning Network, even in the event that there is a mass exodus of layer-1 BTC to Layer-2 BTC protocols. Bitcoin’s core developers could make changes to improve utility for payments. It is possible to reach consensus if the Bitcoin community rallies behind the payments use case.
Toya Zhang is the chief marketing officer at Bit.com. She stated that although Bitcoin was originally designed to be a payment currency but that the development of stablecoins and protocols has made it unlikely that it will ever become a payment token. She explained further:
“Long-term, price volatility and confirmation times are not an issue. Bitcoin’s inability to fulfil its role as a remittance channel is due to the fact that it is too pure an asset. It can only fulfill its original purpose if all other payment-centric cryptocurrency fail. This possibility is most likely dead.
BTC transaction numbers look shaky
Andrew Weiner, vice-president of VIP services at cryptocurrency exchange MEXC Global told Cointelegraph that although BTC is often used for large payments, technically as well as philosophically, micropayments can be made using Bitcoin’s Layer-1 blocks. This is why many developers are pushing for micropayments on Bitcoin’s layer-2 network.
He also noted that Bitcoin’s micropayments have remained flat from 2018-2021 with a public capability of less than $5,000. The network saw an increase of approximately 10 million users from October 2021 to March 20,22, and a total of 80 million. Weiner highlighted this fact:
“The main reasons are the decrease in complexity of layer-2 networks (such the Lightning Network) as well as the maturation of infrastructure for setting up nodes or utilizing networks. As cryptocurrency grows, so do the number of payment processors and wallets. Node cloud hosting companies and node management software firms support Lightning payments. This allows enterprises to integrate more in these products and services.
He did admit that BTC could be used as a daily payment method, but that it would depend on three key conditions. First, the asset must have a mature infrastructure that can allow for low-cost and easy use. Second, the asset must have enough use to attract large institutions, national governments, and large businesses to the asset. Third, the asset must provide adequate privacy and security.
A pawnshop in the Philippines is a popular place to send and receive remittances.
Yohannes Christian is a research analyst at digital asset exchange Bitrue. He noted that while Bitcoin is one of most secure networks, its remittance capabilities are among the slowest and most expensive in terms of speed as well as fees. The asset can only process between 3500 and 4,000 transactions per second, which works out to about 3,500 to 4,000 transactions in a 10-minute block. Christian also noted that it can take up to an entire hour to settle a payment after this transaction volume peaked.
“The Bitcoin network follows the Supply and Demand Law in terms of fees. During the peak of 2017, the transaction fee was $0.20. It reached $50 during the 2017 bull run. This congestion issue could cause a problem with day-to-day Bitcoin payments.
While layer-2 solutions might help to solve some of the scalability issues, he feels that the network still has some work ahead of it being ready for daily transactions. The Bitcoin network has a 10 minute block transaction and a 1MB block block size. Bitcoin Cash (BCH), a close alternative to Bitcoin Cash, has a 2.5-minute block transactions and a 32MB block size. This is 128x faster than BTC.
A layered approach is the key to Bitcoin’s future success
Cointelegraph spoke with Muneeb Ali (CEO and cofounder of Trust Machines), a platform and ecosystem of Bitcoin-centric apps and technologies. He said that once you have a base of Bitcoin-centric applications, it’s easy to add utility and scalability.
“That’s what other blockchain ecosystems are showing us and what we can expect from Bitcoin. Bitcoin has the best global remittance capability due to its decentralization and long-term durability. You can send money in BTC or via stablecoins based on Bitcoin layers.
Ali stated that even though there has been a decade of Bitcoin development, the ecosystem is still in its early stages. Because the Bitcoin ecosystem’s base layer was simple, it has been difficult to build on. It also lacks advanced programming features.
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Developers can now build more complicated applications thanks to various Bitcoin layers, such as the Lightning Network, Stacks, and RSK. He concluded that developer traction is an indicator of greater app development and usage among mainstream users. We’re starting to see this beginning in 2021.
As we move into the future of digital finance, there is a growing number countries, businesses, and institutions that are willing to accept Bitcoin as a settlement currency. This is due to many different reasons. BTC’s volatility in price means that it is not always usable as a payment method. It will be fascinating to see where the future of this digital asset takes us.
Eileen Wilson –Technology and Energy
My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.