The first cryptocurrency of Bitcoin was conceived as a payment system in which transactions are processed directly between the users, without the need to trust a bank or a government.
If this is exactly how Bitcoin works, then why during its first 9 years of existence Bitcoin did not become a generally accepted payment system?
The Visa payment system is capable of processing 24 000 transactions per second, but in a non-emergency mode, this number is 1700 operations per second. On the other side, that is the Bitcoin side, the maximum speed of the bitcoin blockchain processing is only 7 transactions per second. Because of this, in the fall of 2017 more than 300 000 transactions per day took place in the Bitcoin network, some transfers were frozen for several hours and sometimes even days.
With such operation speed, the Bitcoin network cannot compete with payment systems. To change this dealbreaker, an assisting network called Lightning Network comes into play. Most of the future transactions are going to occur in this network. But as for now, this technology is yet to grow.
2. Transaction cost
An important factor for any payment system is the transaction cost. At the end of June 2018, an unknown crypto-millionaire set up a bold experiment and transferred 48 500 Bitcoins, at that time it was $280M. The commission fee? It was only 4 cents.
Banks would be horrified by this, they would have earned thousands of dollars on this transaction. However, this transaction was an exception to the rule. At the time of this article, the average fee in the Bitcoin network was 52 cents, and at the peak of the price in December last year, the transaction cost reached $50. Such commission is too large for small daily purchases worth only several dollars.
3. Time of Confirmation
Bitcoin does not have a central authority, and this imposes certain restrictions on payment processing. To be sure of the transaction reliability, it is recommended to get 6 confirmations. Each confirmation is a new block, obtained after the transaction processing, which the miners create every ten minutes. This way, the seller can be assured of payment in about an hour after the customer sends the money. Not the most convenient option if you decide to buy a cup of coffee and a sandwich during a lunch break.
This Bitcoin disadvantage is soon to be solved by the superstructure over the main blockchain. This structure is called Lightning Network. It can process instant and free transactions, but for widespread implementation, it needs some serious revision.
For Bitcoin, it is a common practice when it loses or adds 5%, 8% or even 10$ of the cost for several hours. This situation is an excellent option for earning money on the stock exchange, but it is absolutely unsuitable for purchasing goods and services.
This is why sellers don’t exactly accept Bitcoin and prefer to cooperate with services that convert cryptocurrencies into fiat money. This eliminates the volatility problem, but in exchange, it creates a third party between the buyer and the seller.
The cryptocurrency market is not regulated by the government. This prevents it from becoming a generally accepted payment system. There are two factors that should be taken into account. The first one is the likelihood that tomorrow, Bitcoin operations will be imposed by huge taxes or banned altogether.
The second factor is important for customers. What if a seller receives Bitcoins, but does not provide the product or if it’ll turn out to be of poor quality? What is there to do in this instance and to whom should a complaint be sent if Bitcoin transactions are not regulated by law? Bitcoin blockchain can handle transactions, but it cannot solve disputes between users in the real world. This is where cryptocurrencies should cooperate with the government for the sake of customer rights.
As you can see, Bitcoin is yet to compete with payment systems. Nevertheless, its technology continues to develop, bridging more and more areas together by the blockchain. Besides, it’s only a matter of time when the Bitcoin holds a leading place in a global financial system.