Mobile Payments

Crypto payments: PayPal’s stablecoin ripple effect on markets

Earlier this year, PayPal released its own stablecoin. What effect has it had on crypto adoption?

PayPal’s introduction of its native stablecoin, PayPal USD (PYUSD), has sparked heated debates within the crypto industry regarding its possible sway on payments and wider crypto adoption.

While this step seems to be a big jump toward accepting cryptocurrencies in regular finance, some industry observers advise caution.

What is PYUSD?

This initiative aims to bridge the fiat and digital currency realms for consumers, merchants and developers. PayPal CEO Dan Schulman highlighted the need for a stable digital-fiat conduit.

“The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the U.S. Our commitment to responsible innovation and compliance, and our track record delivering new experiences to our customers, provides the foundation necessary to contribute to the growth of digital payments through PayPal USD.” 

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Bitcoin-friendly Cash App integrates TaxBit amid tax-filing season

Bitcoin evangelist Jack Dorsey’s Cash App is making it easier for BTC holders to calculate their taxes with the TaxBit integration.

Mobile payments processor Cash App has integrated crypto tax and accounting software TaxBit into its services, giving Bitcoin (BTC) holders a more streamlined approach to reporting their taxes. 

As of Feb. 28, Cash App users can now keep track of their Bitcoin transactions for tax reporting purposes using TaxBit, both companies announced. TaxBit’s chief operating officer Lindsey Argalas said her company’s platform simplifies tax reporting “for everyone who has integrated digital assets into their portfolio.”

Cash App launched its Bitcoin trading services in 2018 and rolled out BTC deposits the following year. The company claims to have over 10 million Bitcoin users. Cash App’s parent company, Block Inc., has generated billions of dollars in Bitcoin revenue over the years. According to United States Securities and Exchange filings, Block Inc. generated $1.96 billion in Bitcoin revenue during the fourth quarter of 2021.

Related: What is crypto tax-loss harvesting, and how does it work?

TaxBit launched TaxBit Network in 2022 to provide crypto traders free tax forms. The industry consortium launched with over a dozen U.S.-based companies, including PayPal, Coinbase, Binance.US, Paxos and Gemini.

Washington’s Internal Revenue Service, or IRS, set Jan. 23 as the start of the 2022 tax filing season. Most taxpayers have until April 18 to file and pay taxes owed. In January, the IRS reminded taxpayers of their crypto income reporting obligations — this includes capital gains from trading, mining and staking activities.

Here’s why crypto companies need to focus on embedded finance

Personalized offers, financing loans, insurance, seamless payment and preferred payment mode were key features that came out as top priorities for customers.

A new study by Decta highlighted the importance of embedded finance features in today’s fintech world. With online shopping and digital payments becoming a norm, the study pointed toward some key drivers for a seamless customer experience.

Embedded finance is a new type of software distribution that works with financial infrastructure providers to include financial services in the ecosystems of already-existing products. The most common embedded finance offerings include banking, lending, insurance, payments and branded credit cards.

According to the study, quick payments and the availability of a selected payment option are the most crucial elements for a satisfying online buying experience. The lack of a preferred payment option or friction during the checkout process is the main reason for a bad shopping experience, with nearly 49% of respondents stating they would probably stop shopping if they ran into these issues.

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Personalized offers became one of the key features in embedded finance, which is valued and can be enhanced by focusing on different demographics. For example, 54% of Americans preferred integrated add-ons like financing and insurance. Generation X participants were most satisfied with personal offers, while Gen-Z and Baby Boomer participants gave the offers they got a lower rating.

Loyalty rewards, frictionless payments and same-page checkouts were some other preferred embedded features that got the respondents’ approval.

While crypto companies are slowly trying to integrate embedded finance features, be it crypto-based credit cards or loans, the study offers insights into customer targeting and acquisition. Crypto companies have been exploring loyalty rewards and helping mainstream firms incorporate these embedded finance services using blockchain.

The cryptocurrency ecosystem saw an influx of institutional investment during the last bull market. Some of the biggest fortune 500 companies and traditional hedge funds jumped on the crypto bandwagon, giving a glimpse of mainstream crypto adoption. 

However, there is still a long way to go with the main focus on making crypto a daily driver for retail users. The study around embedded finance could help crypto companies take a cue from the mainstream and implement it with crypto-linked products to offer a better customer experience. 

Why crypto remittance companies are flocking to Mexico

Mexico has a burgeoning crypto remittance market that has immense potential.

Mexico is the second-largest recipient of remittances in the world, according to 2021 World Bank statistics. Remittances to the nation jumped to a record $5.3 billion in July, which is a 16.5% increase year-over-year compared to the same period last year. The steady growth presents myriad opportunities for fintech companies.

Not surprisingly, droves of crypto companies are setting up shop in Mexico to claim a share of the burgeoning remittance market.

Over the past year alone, about half a dozen crypto giants, including Coinbase, have set up operations in the country.

In February, Coinbase unveiled a crypto transfer service tailored to United States-based clients looking to send crypto remittances to Mexico. The product enabled recipients in Mexico to withdraw their money in pesos.

Other companies have since joined the foray. In August, the Malaysia-based Belfrics digital currency exchange announced plans to open crypto transfer operations in Mexico. According to the published communique, the firm will start by launching blockchain wallet and remittance service solutions.

Another notable company that is jostling for a share of the Mexican crypto remittance market is Tether. In May, the crypto company launched the MXNT stablecoin, which is pegged to the Mexican peso. According to the enterprise, the collateralized digital currency will help customers to navigate volatility and use cryptocurrencies as a store of value.

Besides the new entrants, local Mexican crypto companies such as Bitso, which is one of the largest crypto exchanges in the Latin American nation, are already making moves to enhance their reach in an increasingly competitive market.

In November 2021, the Mexican firm established an alliance with U.S.-based Circle Solutions. The collaboration allowed the agency to use Circle’s payment system to facilitate U.S.-to-Mexico crypto remittances.

Cointelegraph had the opportunity to speak with Eduardo Cruz, head of business operations and enterprise solutions at Bitso, about the factors driving the crypto remittance trend in Mexico. He cited high bank transaction costs, slow settlement times and the lack of access to banking facilities as some of the factors pushing the masses toward crypto remittances.

He also highlighted recent alliances that have helped Mexican crypto companies bring crypto remittance services closer to nationals around the world, thereby boosting their adoption.

“For example, Bitso’s clients such as Africhange, which recently integrated Canada–Mexico crypto-powered remittance services to Bitso, and Everest, which enables remittances from the United States, Europe and Singapore into Mexico, are offering a cheaper and faster way to send money to Mexico,” he said.

Factors driving the Mexican crypto remittance sector

One of the biggest factors driving the Mexican crypto remittance sector today is the huge Mexican population residing in the diaspora. Presently, the U.S. and Canada have the highest number of Mexican immigrants.

According to data released by the U.S. Census Bureau in 2020, there are approximately 62.1 million Hispanic people residing in the U.S. today, with Mexicans comprising 61.6% of this population.

Going by 2021 numbers, money sent to Mexico from the U.S. accounted for about 94.9% of all remittances, while Mexicans residing in Canada sent $231 million in the second quarter of 2022.

In a nutshell, the rising number of Mexicans migrating to the U.S. and Canada is pushing remittances to new levels, and the high demand is spilling over to the crypto payments industry.

The decline of the Mexican peso and the emergence of a strong dollar have also contributed to the spike in remittances over the past couple of years.

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This phenomenon has occurred in previous crises, such as the 2008 financial crisis, which plunged the Mexican economy into turmoil. In times like this, Mexican institutions and investors usually tend to seek refuge in the greenback, which typically has a higher buying power.

In March 2020, when coronavirus lockdowns began, the U.S. dollar’s purchasing power jumped by approximately 30% in Mexico. At the same time, the average remittance transfer to Mexico increased from $315 to $343.

Today, the availability of dollar-pegged cryptocurrencies allows Mexicans living in the diaspora to leverage the heightened buying power of the USD to make investments and purchases in their home country, hence the higher remittance rates.

Greater convenience

Blockchain technology eliminates third-party mediators from transaction processes, which leads to lower transaction costs and less time used when undertaking remittance transactions.

Cointelegraph caught up with Structure.fi president and co-founder Bryan Hernandez to discuss the impact of these factors on the Mexican remittance market. His company operates a mobile trading platform that gives investors exposure to traditional and crypto financial markets:

“Crypto businesses see a huge opportunity here to streamline (conventional money transfer) processes using blockchain technology. Using crypto, cross-border payments can be made directly with little or no fees instantaneously.” 

In Mexico, many financial institutions are also located far away from rural areas, and this makes it hard for the locals to access financial services. Crypto remittance solutions are beginning to close this gap by enabling citizens in such areas to access their money without having to travel long distances.

Moreover, they are able to serve the unbanked. As things stand, over 50% of Mexicans lack a bank account. This makes crypto remittance solutions convenient for citizens in this demographic, as all that’s needed to receive funds is a crypto wallet address.

Another reason why more Mexicans are embracing the crypto remittance fad is their distrust of banks. Mexicans living in the diaspora are sometimes subjected to redlining practices, and this has led to more people using crypto remittance solutions.

Dmitry Ivanov, chief marketing officer at CoinsPaid — a crypto payments firm — told Cointelegraph that the wider use of crypto remittance networks in Mexico was bound to boost adoption overall.

“The clear advantage of digital currencies is what is paving the way for their broad-based adoption in the country and the Latin American world as a whole,” he said, adding:

“The benefits derived from digital currencies have made Mexicans see how exploitative banks have been thus far with their charges, and the general comparative inefficiency has made them distrust traditional financial institutions in general. With a little more regulatory push, the country’s remittance inflow may be dominated by cryptocurrencies.”

A few hurdles

Blockchain remittance solutions provide a raft of important benefits to Mexican users, such as fast transfers and lower transaction fees.

However, they have to overcome some fundamental challenges to dominate the cross-border payments market. The technical nature of crypto platforms, and limited local currency withdrawal options, for example, present some unique challenges that are likely to slow down adoption.

Mexican citizens also still prefer using cash to make payments. According to the 2021 McKinsey Global Payments Report, Mexico was ranked top among countries projected to have high cash usage over the next couple of years.

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The research report forecasts that consumer cash payments will account for about 81.5% of all transactions in Mexico by 2025.

This presents a major hurdle for crypto adoption in the country, despite rising crypto remittance figures.

Going forward, it will be interesting to see how the tech-savvy and crypto evangelists navigate the challenges facing adoption and take advantage of the momentum provided by the growing remittances industry.

Bitcoin Lightning Network vs Visa and Mastercard: How do they stack up?

Bitcoin’s Lightning Network has been growing at a slow pace. What’s keeping it behind, given its high transaction throughput?

Bitcoin (BTC) changed the world as a decentralized, nongovernmental form of currency that can facilitate peer-to-peer (P2P) transactions that transcend national borders. 

But despite this functionality, Bitcoin’s role as a payment mechanism has been called into question due to its low transaction throughput.

The Bitcoin blockchain can handle up to seven transactions per second, which means that network demand has seen the average transaction fee on the network reach an all-time high above $62 during specific periods.

In order to address low throughput and high transaction fees, developers made the Lightning Network — a layer-2 scaling solution that allows for off-chain transactions.

The Lightning Network creates a P2P payment channel between two parties in a transaction. The channel “allows them to send an unlimited amount of transactions that are nearly instant as well as inexpensive. It acts as its own little ledger for users to pay for even smaller goods and services such as coffee without affecting the Bitcoin network.”

Users of the network lock in a certain amount of Bitcoin in order to create a channel. Once the BTC is locked, recipients can invoice amounts as they need.

To a certain extent, the network is seen as a solution to Bitcoin’s scalability problem, but its adoption has been somewhat slow. The network currently has 87,000 payment channels and 4,570 BTC locked in, worth over $111 million, compared to the 19.1 million BTC in circulation, the market capitalization of which is over $460 billion.

Despite its slow adoption, the network has the potential to outcompete existing payment solutions.

Lightning Network’s transaction throughput 

Payments giants like Visa and Mastercard are used to process payments worldwide. Mastercard’s network is estimated to process up to 5,000 transactions per second, making it far superior to Bitcoin’s seven per second.

Visa’s transaction throughput is even more impressive, being able to process up to 24,000 transactions per second. In a recent interview, Visa chief financial officer Vasant Prabhu said that the network could, in theory, handle up to 65,000 transactions per second.

The Lightning Network goes much further, however, processing up to 1 million transactions per second, making it the most efficient payment system in the world in terms of transaction throughput.

Cointelegraph reporter Joseph Hall does an impromptu test of the Lightning Network versus fiat contactless payments.

Speaking to Cointelegraph, Ovidiu Chirodea, CEO of Romanian cryptocurrency exchange Coinzix, noted that the network marks the next phase in the evolution of money. Per Chirodea, first, there was gold, which was a store of value but wasn’t a convenient medium of exchange, with fiat currency following up as a convenient medium of exchange.

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Bitcoin, Chirodea said, was an evolutionary step that created a new store of value, with the Lightning Network serving as a platform for it to also become a medium of exchange:

“Visa is charging businesses around 3% to process payments, so I think the Lighting Network is a game changer. Companies will increase their revenue by using it, and that’s not something that you can ignore.”

He noted, however, that the network’s scalability “isn’t so great,” as users need to open a channel with each party and tie up BTC on it, which affects their liquidity. Per his words, tying up liquidity can be avoided by “using other routes and other payment channels,” but the solution “isn’t very scalable, as payments channels keep opening and closing.”

Thomas Perfumo, head of business operations and strategy at crypto exchange Kraken, told Cointelegraph that since the firm launched Lightning Network support in April 2022, it has “steadily increased network capacity” to the point that it’s now the fifth-largest node on the Lightning Network:

“We currently have over 800 open channels that can facilitate upward of 18 billion satoshis worth of payments. Clients are routinely funding their accounts via the Lightning Network on a daily basis.”

Perfumo added that the exchange sees the Lightning Network as “essential for the creation of a permissionless payment system that will ultimately help accelerate the adoption of cryptocurrencies worldwide.”

While the Lightning Network’s advantages in terms of transaction throughput are now clear, it has some notable downsides.

Firstly, opening up a Lightning wallet and funding it may not be as easy or as ingrained as opening a bank account and using a debit card.

Furthermore, funding a Lightning Network wallet requires users to send BTC from a traditional Bitcoin wallet, and creating a payment channel involves locking up funds.

Once funds are locked into a payment channel, they can freely transact, but the funds can only be recovered after that channel is closed. Moreover, offline transaction scams are possible, as one party may close a channel when the other is offline to try to steal funds. While third-party services may mitigate the risk, it keeps some from entering the network.

Privacy, ease of use and censorship-resistance

Keeping these disadvantages in mind, Max Rothman, head of crypto and digital assets at global payment processor Checkout.com, told Cointelegraph that being able to use cryptocurrencies to exchange goods and services “is only effective when crypto can seamlessly exchange hands.”

The Lightning Network being peer-to-peer, Rothman added, puts the responsibility for the transactions process on both merchants and customers. On an institutional level, “This can be challenging and resource-intensive to administer in-house without a trusted partner to manage thousands or millions of cross-currency transactions.”

Rothman said that solutions like the one used by Checkout.com, which rely on partner companies like Visa to offer on-ramps that allow for crypto-to-fiat conversions, are that “bridge that offers a more seamless translation experience between Web2 and Web3.”

Onboarding the next million or billion people to crypto “requires guidance, support and bespoke solutions that work for every level of payment needs and acknowledge the current payments environment in which we operate,” he stated.

Speaking to Cointelegraph, Bruce Fenton, a board member at the Bitcoin Foundation and a candidate for the United States Senate in New Hampshire, said the Lightning Network “enables Bitcoin to do more transactions” while being “more decentralized and censorship-resistant than centralized companies or most other chains.”

When asked about the pros and cons of using the Lightning Network over solutions from companies like Visa, Fenton dismissed Visa as “entirely centralized,” which means it can “be stopped or censored.” While centralization may be a concern on the Lightning Network for some, he said that it does not affect the Bitcoin blockchain itself and added:

“It’s mostly about what money you are building on and for. For those who believe in Bitcoin as the superior money, LN is the most well-known scaling solution.”

Chad Barraford, technical lead at decentralized liquidity protocol THORChain, told Cointelegraph that when checking out at online stores, the Lightning Network enables a “cash” option, in which “there is no other party participating, no exorbitant fees and substantial privacy benefits.” 

He said that the network is “not solely motivated by the best interests of shareholders or board members” but serves its participants’ interests as a public good, adding:

“Visa is a financial institution that inherently seeks profit and control and is at the behest of governments. The Lightning Network is purely a public good. It only exists to provide a fundamental and critical service for every person on the planet in need of access to financial services.”

The Lightning Network’s adoption and success are “tightly coupled with the Bitcoin network itself,” Barraford stated. He believes that as the world sees BTC less as a speculative asset and more “like a currency to purchase items,” then inflationary pressures “will push more and more people to the Lightning Network.”

While the comparison against networks like that of Visa or Mastercard is clear from these answers, it’s worth pointing out that some of these arguments apply to other solutions such as PayPal, which can be forced to freeze customers’ assets or charge higher fees, for example.

Blockchain technology has been developing over time to the point that other blockchains are also able to compete with Visa’s transaction throughput without seeking to profit from it.

What about other chains?

Speaking to Cointelegraph, Fenton hinted that the Lightning Network stands out as “more decentralized and censorship-resistant” than most other blockchains.

Decred co-founder and project lead Jake Yocom-Piatt built on that idea, telling Cointelegraph that other blockchains are unable to match the Lightning Network’s qualities.

Yocom-Piatt claimed that the high-throughput blockchain Solana, with a theoretical throughput of 710,000 transactions per second, is a “centralized, noncustodial blockchain that requires its validating nodes run in datacenters on high-end hardware.” Comparing Bitcoin, Solana and Decred itself, he said:

“Of these three, Lightning Network is the most decentralized, sovereign and most aligned with the original ethos of the cryptocurrency space. Solana sacrifices most of its decentralization via its onerous validating node requirements, but at least it does not appear to be able to censor users and merchants arbitrarily.”

Whatever the future holds, it’s clear that innovation in the cryptocurrency space is increasing transaction throughput. Whether users will end up choosing to sacrifice privacy and immutability for more convenience remains to be seen.

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As it stands, more convenient solutions are available. It’s now easier to use layer-1 blockchains for payments via centralized entities that allow crypto assets to be converted to fiat currencies at the point of sale.

For the Lightning Network to gain a wider audience, more services are likely going to have to support it. Leading exchanges like Coinbase, Binance and FTX haven’t followed the footsteps of other exchanges in embracing the network, hindering its growth. As the network relies on having more payment channels to keep routing transactions, other networks and centralized payment providers are likely to stay ahead.

Binance aims to become a super app with Splyt crypto partnership

The partnership with the “super app enabler” will allow users to pay for taxi services and food deliveries with crypto using Binance Pay.

The world’s largest cryptocurrency exchange, Binance has partnered with Splyt, a “super app enabler,” to bring payment options to the Binance application. Payment options made for Splyt services include cryptocurrency. 

When live, the integration will allow Binance users to pay for ridehailing services, but “also bikesharing, scooters, airport transfers, public transport and even food delivery,” a Splyt spokesperson told Cointelegraph.

As per usual, Binance CEO Changpeng Zhao, better known as “CZ,” helped to break the news on Twitter:

The news comes as some relief to Binance, which suffered issues related to “stuck transactions” on Bitcoin (BTC) withdrawals on Monday. The problem was resolved eight hours later.

A Splyt spokesperson told Cointelegraph that it would be the “first partnership in the cryptocurrency space” and faced with perilous price action with Bitcoin sub $25,000, “Splyt is enthusiastic about its development.”

“Increasingly, users are turning to their crypto wallets to pay for everyday services. […] Fully integrating everyday services as an obvious next step for crypto wallets.”

For Binance, it’s no secret they’re keen to get a foothold in the crypto payments space. For CZ, payments and app integrations are meant to up the omnipresent Binance brand awareness. Since the world has gradually reopened following the depths of the COVI-19 pandemic, CZ has undertaken a world tour, pitching crypto and Binance Pay to countries and investors all around the world.

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The report says that Binance is already used by 90 million users in over 150 countries worldwide. For Splyt, the partnership opens the door to a broad customer base:

“The other perspective is equally important: mobility and other on-demand services can dramatically increase acceptance and transaction volumes, by being available through crypto platforms, who together have hundreds of millions of users.”

Critically, as companies such as BlockFi, Gemini and most recently, Coinbase report staff reductions, the news is further evidence that Binance is doubling down into the bear market. Another feather to its cap, Binance continues to expand operations and roll out capital expenditure.