(C) Reuters. When Will You Start Buying Dinner with Crypto?
More than a decade ago, Satoshi Nakamoto wrote in a famous whitepaper that Bitcoin (BTC-USD) was a “peer-to-peer electronic cash system” that would allow “any two willing parties to transact directly with each other without the need for a trusted third party.”
Up until now, Bitcoin hasn’t been able to deliver on that promise. You might own cryptocurrencies, but when was the last time you actually used them to buy something?
Crypto as a ‘Funding Source’
When will crypto become a common payment option just like fiat? Some of the world’s leading payment and credit card companies are trying to make it easier to spend crypto, but they are barely scratching the surface.
Visa (NYSE:V) has launched crypto-linked cards in partnership with Circle, BlockFi, and Coinbase (NASDAQ:COIN). It processed more than $1 billion worth of crypto-linked transactions in the first half of 2021. Mastercard (NYSE:MA) is also planning to launch a credit card with the crypto exchange Gemini.
PayPal (NASDAQ:PYPL) has launched a “Checkout with Crypto” feature to support crypto as a payment option. It converts Bitcoin, Ethereum (ETH-USD), Litecoin and Bitcoin Cash to U.S. dollars to complete a transaction. Then there are projects like Bitpay, Coinsfer, and TenX that let users pay for goods in crypto.
If you take a closer look at them, you’ll notice a common thread. All of them convert Bitcoin into USD or another currency to complete the transaction. It means the crypto is merely a “funding source” rather than a medium of exchanging value. On top of that, the entire process of transferring crypto to other accounts, converting it to fiat, and settling the transaction is a time-consuming and costly affair.
Meanwhile, niche blockchain solutions such as Bistroo are solving problems, and facilitating seamless crypto payments within a specific sector. Bistroo is a Dutch direct-to-consumer platform for meals, food, and beverages. It facilitates a direct connection between restaurants and specialty food stores and their customers, eliminating the need for middlemen like Uber (NYSE:UBER) Eats and TakeAway that take up to 30% of the order value as their commission.
Bistroo has a native BIST token. Restaurants can choose to accept order payments in BIST, just as consumers can opt to pay restaurants and specialty food stores within the Bistroo network using BIST tokens. The payment process doesn’t involve converting BIST to fiat to carry out the transaction, though merchants can do so afterwards. Since no third-party is involved, there are no third-party fees on BIST transactions.
There are a number of factors that could hold crypto back from going mainstream. For instance, crypto assets are highly volatile, which makes it difficult for them to serve as a reliable medium of exchanging value.
Imagine a $100 bill that enables you to buy an Apple (NASDAQ:AAPL) (APPL) Magic Mouse one day and an iPad a few weeks later. Price fluctuations prevent crypto from becoming a widely accepted payment method for consumers.
Then there are scalability issues that haunt Bitcoin, as well as most altcoins, slowing down transaction times, and increasing gas fees. Without the ability to scale, a blockchain network can’t become a popular payment method. A Bitcoin transaction can take up to 10 minutes to be validated. Ethereum is slightly faster than Bitcoin, but it struggles with network congestion and sky-high gas fees nonetheless.
Visa is capable of handling more than 24,000 transactions per second (TPS), even though it only needs to process about 1,700 TPS to function well. In contrast, the Bitcoin network processes only four to five TPS while Ethereum can handle 15 to 30 TPS. The upcoming Ethereum 2.0 will process a staggering 100,000 TPS. Currently, neither Bitcoin nor Ethereum is as fast as the likes of Visa to smoothly facilitate everyday transactions.
Thankfully, Layer-2 scaling solutions have emerged to overcome the scalability issues. Lightning Network is an L2 solution for Bitcoin. It takes some of the transactions off the Bitcoin blockchain base layer to facilitate faster and cheaper payments, opening the doors for large-scale micropayments in Bitcoin.
The Lightning Network retains the security and peer-to-peer nature of Bitcoin protocol. It uses payment channels to enable any two willing parties to carry out low-cost, frictionless, and instantaneous transactions.
Since El Salvador embraced Bitcoin as a legal tender, people in the Central American nation have begun using Bitcoin to pay for bus fare, coffee, and much more via the Lightning Network. Payments on the Lightning Network are instant and atomic, which means it can be used at retail point-of-sale terminals to facilitate transactions without involving a fiat currency.
El Salvador is proof that if the regulatory roadblocks are removed, “buying dinner with crypto” can and will become a reality.
Disclosure: At the time of publication, Reuben Jackson did not have a position in any of the securities mentioned in this article.
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