Technology suggests that Bitcoin is still far from ideal for daily payments

It is no secret that a large majority of investors, from both traditional and crypto-financing, view Bitcoin (BTC) as a long-term value store similar to “digital gold.” And although it may be the dominant narrative around the asset, it is worth noting that in recent years, the use of the flagship crypt as an exchange medium has been increasing.

At this point, recently, the central bank of El Salvador revealed that residents living abroad have sent over $ 50 million in money transfers to friends and family. To elaborate, Douglas Rodríguez, president of El Salvador’s central bank, announced that BTC transfers worth $ 52 million had been processed via the country’s national digital wallet service Chivo during the first five months of the year alone, marking 3.9%, 118 million dollars. increase in value compared to the same period in 2021.

Bitcoin as a payment medium has been on the rise, which is clearly shown by the noticeable increase in the use of layer-2 payment protocols such as Lightning Network. To this point, BTC transaction volumes are currently up as much as 400% over the last twelve months.

Therefore, it is worth delving into the question of whether Bitcoin’s utility as a daily transaction medium is actually feasible, especially from a long-term perspective, as compared to other networks such as Ethereum, Solana or Cardano, Bitcoin is still behind key areas including scalability and transaction flow.

Is Bitcoin’s tool as a payment method overrated?

According to Corbin Fraser, head of financial services for Bitcoin exchanges and cryptocurrency wallet developer Bitcoin.com, Bitcoin has lost its first mover advantage as peer-to-peer (P2P) cash. This is due to the fact that the Bitcoin community since 2016 has done everything to explain to users that they should definitely not use Bitcoin for payments or remittance-related purposes. He added:

“Use cases of remittance and P2P cash payments have moved to other blockchains with higher throughput, lower fees. Bitcoin will be hard pressed to reintroduce the concept of daily payments to its users and other communities focused on these use cases that have found a home under various others banners. “

Fraser said that taking into account the difficulty side of things, such as problems with regular cryptocurrencies deploying Layer 2 solutions such as Lightning Network to process payments, the situation becomes all the more complex. “Competition in low-cost, high-throughput chains has increased significantly in the last two years. Bitcoin is on its heels when it comes to shifting the focus back to using it for daily payments, he added.

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On a technical note, he highlighted that Bitcoin’s limited throughput of five transactions per second means that as people begin to flow to the blockchain for daily transactions, the memory pool will fill up, causing the fee market to expand, praising more and more users and create a negative experience for users who intend to use it for daily payments. He said:

“Even in the event of a mass exodus from layer-1 BTC to layer-2 BTC protocols, the system will struggle both due to deposits and withdrawals to and from the Lightning Network. That said, Bitcoin’s core developers may make some changes to further improve the benefit of payments. If the BTC community can rally behind the payment use case, it is possible consensus can be reached. “

A somewhat similar view is shared by Toya Zhang, marketing manager for the cryptocurrency exchange Bit.com, who told Cointelegraph that although Bitcoin was originally designed as a payment currency, the development of various protocols and stablecoins has made it very unlikely that it will ever be used. as a payment token anytime soon, even with the implementation of layer-2 solutions. She further explained:

“In the long run, restrictions on confirmation times or price volatility are not an issue. The reason why Bitcoin is not able to fulfill its role as a transfer medium is very simple, Bitcoin is one too pure resource. It will only fulfill its original mission if all payment-centric cryptocurrencies fail, and the possibility of this has most likely sailed. “

BTC transaction numbers seem unstable

Andrew Weiner, vice president of VIP services for cryptocurrency exchange MEXC Global, told Cointelegraph that while BTC tends to be used for large payments, technically and philosophically, it is difficult to make micropayments using Bitcoin’s layer-1 blocks, which are the reason why so many developers are pushing micropayments on bitcoin’s layer-2 network.

At this point, he noted that from 2018-2021, Bitcoin’s micropayments remained completely flat, with a public capacity of less than $ 5,000. However, things went to a whole new level last year, when the network went from 10 million users to about 80 million from October 2021 to March 2022. In this connection, Weiner highlighted:

“The main reasons for this are the reduction in the complexity of layer 2 networks (such as the Lightning Network) and the gradual maturity of infrastructure to set up nodes and utilize networks. More and more wallets and payment processors continue to grow. Node cloud hosting and node management software companies support BTC’s Lightning payments, enabling businesses to integrate more into these products and services. “

That said, he admitted that BTC will be a means of daily payment depends on the asset meeting three core conditions: whether the infrastructure is mature enough to achieve low costs and practical use, whether there is enough use so that large companies, institutions and national authorities are willing to use the asset and ultimately, whether it can provide a good enough level of security and privacy.

Yohannes Christian, research analyst for digital asset exchange Bitrue, noted that despite being one of the most secure networks in existence today, Bitcoin’s remittances are one of the worst in terms of speed and fees. He pointed out that the asset can only process 5-7 transactions per second (which gives 3500 to 4000 transactions in a 10-minute block). Furthermore, when this transaction number reached its peak, Christian noted that it could take up to an hour to settle a payment, adding:

“In terms of fees, the Bitcoin network follows the supply and demand law, with a low of $ 0.20 per transaction and as high as $ 50 per transaction below the height of the bull run in 2017. This congestion problem can create a systematic problem for daily Bitcoin payments. . “

And while the development of Layer 2 solutions may help solve some of the current scalability issues, he believes the network still needs some time before it can be ready to be used for daily transactions. To put things in perspective, the Bitcoin network currently has a 10-minute block transaction with only a 1MB block size. In comparison, the near alternative, Bitcoin Cash (BCH), has a 2.5-minute block transaction and 32 MB block size, which is 128 times faster than BTC.

The future of Bitcoin lies within a layered approach

Muneeb Ali, CEO and co-founder of Trust Machines – an ecosystem of Bitcoin-centric applications and platform technologies – told Cointelegraph that once you have a decentralized base as good as Bitcoin, it’s easy to build extra utility and scalability on top, and add :

“This is what we see in other blockchain ecosystems and what we can expect for Bitcoin as well. In terms of global remittances, Bitcoin has the strongest opportunity given decentralization, long-term durability, uptime and availability. The transfer can be in BTC, or through stablecoins built on Bitcoin layers.

Ali said that despite the fact that it is a decade worth of Bitcoin development, we are still at the beginning of the growing ecosystem. This is because it has traditionally been difficult to build on the Bitcoin ecosystem, since the foundation was very simple and lacked advanced programming features.

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But now with different Bitcoin teams like Lightning Network, Stacks and RSK, developers can build more complex applications with relative ease. “Developer grip is an early indicator of increased app development and use by mainstream users, and we’re starting to see this now from 2021 or so,” he concluded.

Therefore, as we enter the decentralized future of digital finance, an increasing number of countries, institutions and businesses seem to be willing to use Bitcoin as a settlement currency due to a number of different factors. However, due to the fact that BTC still experiences great volatility in its daily price action, it is still limited in the general scope of usability, especially as a payment medium. Therefore, it will be interesting to see how the future of the digital resource unfolds from here.