Payments

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.

Who accepts Ethereum as payment?

What makes Ethereum a reliable mode of payment? Find what makes Ether qualify as money, its advantages and the process of accepting ETH payments.

Is there a possibility of a refund like traditional banks?

If an ETH transaction fails or someone mistakenly sends it a wrong address, is there a provision of a refund?

Ethereum does not refund gas costs for failed transactions. The fundamental design of an open blockchain like Ethereum renders such a provision improbable. Fees paid by the sender for adding transactions to blocks are paid directly to miners on Ethereum network, the status of the transaction as successful or failed notwithstanding.

In case of a failed transaction, the Ether the person attempted to send is returned to the wallet. However, if anyone ends up sending ETH to a wrong address, they would lose the fees as well as tokens, unless they know the receiver and they agree to return the amount.

If the funds have been sent to an address associated with an exchange, these could be recovered at the exchange’s discretion. One would need to share the transaction’s details with the exchange, such as the address one wanted to send ETH to and the hash of the wrong transaction. 

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What are gas costs in Ethereum?

Gas costs in Ethereum were exorbitant before the Merge with the Ethereum consensus layer. What has been the impact on gas costs?

The concept of gas was introduced in Ethereum to compensate for the computing energy the ecosystem requires to process and validate transactions. All computing requirements for processing a transaction are sourced from miners and the gas fees associated with specific transactions is distributed among the miners involved in block formation.

A gas limit indicates the maximum amount of gas one is willing to spend on a particular transaction. A higher gas limit means one needs to spend more to execute the transaction. The cost of gas goes up and down with the supply and demand for processing power.

The EVM (Ethereum Virtual Machine) can execute a diverse kind of smart contracts including swaps, options contracts, coupon-paying bonds, bets and wagers, employment, escrow and more. This enables businesses to collect funds in an automated manner without any human interference. Earlier, gas costs in Ethereum shot up when demand was high, often to exorbitant levels. After the introduction of the Ethereum consensus layer, the issue eased up.

Where to store ETH?

Merchants as well as users need a secure and convenient place to store ETH.

Depending on factors such as security and convenience, one could store ETH in hot or cold wallets. A “hot” cryptocurrency wallet is accessible online and facilitates transactions with the help of public and private keys. On the other hand, a “cold” wallet, also termed a hardware wallet, is a physical item that keeps cryptocurrencies offline. Cold wallets are considered more secure than hot wallets, while the latter are more convenient.

Most people holding ETH tend to store it in hot wallets, which are basically software programs capable of interacting with Ethereum blockchain. Hot wallets include desktop, mobile and most exchange custody wallets. Though these wallets make transferring crypto easy, they are vulnerable to hackers. For anyone holding ETH in large amounts, keeping the bulk of their crypto in a cold wallet while keeping just enough in a hot wallet to execute regular transactions might be an ideal solution.

Cold wallets, not connected to the internet, are at a lesser risk of being compromised compared to hot wallets. A USB drive device, used for storing ETH and other cryptocurrencies, stores a user’s private keys. Anyone holding ETH could also keep it in custody through a paper wallet, which they can generate on certain websites. A paper wallet has public as well as private keys regarding ETH on hold.

How to accept payment in Ethereum?

Any merchant looking to accept payment in Ethereum needs to take certain steps.

A merchant looking to receive payments in ETH needs to set up a payments infrastructure that facilitates transactions in an easy and convenient way. They can create a business account with a payment processor like BitPay, Flexa or CoinRemitter, and begin accepting ETH through their app. The process usually includes

  1. Sign up for a business account.

  2. Enter an Ethereum address.

  3. Create an API key.

  4. Add an integration method (API, plugins, invoices, payment widget or a payment link) to checkout.

  5. Start accepting payment in Ethereum.

Web infrastructure platform Cloudflare supports the deployment of Ethereum for taking payments through its Ethereum and IPFS (InterPlanetary File System) gateways. One can log into the dashboard and configure a zone for Ethereum. Cloudflare’s Ethereum Gateway enables users to read and access all information validated by the existing nodes on the blockchain without restrictions.

What are the advantages of accepting payment in Ethereum?

Taking payment in Ethereum brings in a gamut of advantages for both users and entrepreneurs.

Transitioning to a blockchain-based ecosystem brings in a string of advantages for users as well as entrepreneurs. Here is a drop-down detailing why accepting payment in Ethereum works well for the customers of an enterprise:

Additional payment option

In a world that is fast adopting cryptocurrencies, providing customers with an additional payment option gives businesses an advantage over their competitors. Cryptocurrency gateways enable merchants to accept digital payments and receive the amount in fiat.

Transparency

A decentralized ecosystem is inherently transparent, giving customers more confidence while making the purchase. Crypto transactions get executed on a blockchain where they are written irrevocably, without any prejudice of a centralized authority.

Less fraud

Ethereum transactions in such purchases get routed through a smart contract, making fraudulent activities less likely. When smart contracts are audited, scamsters have negligible chances of succeeding.

Quick transactions 

Global transactions in Ethereum are considerably quicker, compared to conventional international payments. Crypto transactions get executed in minutes, while fiat transactions routed through banks might take days to reflect in the account.

Enterprises too have a set of strong reasons to begin accepting ETH.

Finality

Finality refers to a transaction’s status when it is part of a block that cannot change. In Ethereum, conventionally working on proof-of-work (PoW) consensus algorithm, the average time for achieving finality is six minutes (25 confirmations) while the average time to mine a single block is 15 seconds.

This is considerably lower than Bitcoin (BTC), the largest cryptocurrency, which takes 60 minutes (six confirmations) to attain finality with the average time of 10 seconds to mine a block. When the Merge (the implementation of Ethereum’s consensus layer) is complete, the time it takes for an ETH transaction to reach finality will further decrease.

Data coordination 

Ethereum has a decentralized architecture designed to allocate information and trust without prejudice, eliminating any need for a central entity to coordinate data. The decentralized system seamlessly manages the system and processes transactions.

Incentive layer 

The ecosystem facilitates the development of mechanisms that reward supportive activities like verification and availability, while punishing activities that negatively affect the blockchain and surrounding mechanism. Incentives to promote honest behavior help to meet security requirements.

Tokenization 

Any asset that has been registered in a digital format can be tokenized on Ethereum. Tokenization helps fractionalize previously cumbersome assets such as real estate, which had become simply too expensive and unravel new economic models such as crowdsourced data management.

Decentralized domain 

Merchants with no prior exposure to crypto assets could find it overwhelming to send and receive cryptocurrencies. Crypto wallet addresses are a long string of digits and letters. Moreover, one requires a different address to collect each cryptocurrency payment.

Thanks to the Ethereum Name Service (ENS), users can create a universal nickname for all their public addresses. Rather than using an unreadable array of keys for receiving crypto payments, they could have a single ENS domain, like ‘Joseph.eth.’

What makes Ether qualify as money?

Ether satisfies all three major criteria for a currency: store of value, medium of exchange and unit of exchange.

Any currency fits the bill as a payment unit if it fulfills the above three features of money. Store of value is an asset that retains its purchasing power in future. The value could be stable or increase over time, but it won’t go down. Risk aversion is a key concept behind a store of value, and prices rise  steadily if there is a perpetual demand for the asset.

As a medium of exchange, money serves as an instrument that facilitates the sale, purchase or trade of goods or services between parties. For settling economic transactions, currency is the most common medium of exchange. As a unit of account, money should be divisible, fungible and countable. Divisibility refers to the division of a unit of account into its component parts, which equal the original value. Fungibility is the property where a unit of currency has the same value as any other unit.

Ether scores well on all these parameters. ETH is a scarce digital money that is held and exchanged over a blockchain. Units of Ether can be used for measuring the value of goods and services, and later for purchase. An individual can use Ethereum for investment purposes as well. They could buy ETH and hold it to redeem in future, hoping for an increase in its value.

What is Ethereum?

Ethereum is the first-generation blockchain technology for building DApps, holding assets and transacting in a decentralized environment.

Powered by blockchain technology, Ethereum is a decentralized platform designed to be scalable, programmable and secure. It facilitates a peer-to-peer (P2P) network for the secure execution and verification of application codes via smart contracts. These are automated software blocks that enable participants to transact in the absence of a central authority.

Transaction records in Ethereum are immutable and transparent, while giving participants full ownership. To send transactions via user-created accounts, a sender has to spend Ether (ETH), the native cryptocurrency of the blockchain.

Thanks to its acceptability, Ether has emerged as a popular currency with which to make payments. Decentralized applications (DApps) use ETH to interact with apps based on Ethereum blockchain and execute transactions. The apps use bridges to work with cryptocurrencies other than ETH. This is termed cross-chain compatibility in blockchain parlance.

Brazilian payment app PicPay launches crypto exchange with Paxos

The integration with Paxos marks the first move for PicPay to introduce its 30 million customers to digital assets and help them understand Bitcoin.

Major Brazilian payment application PicPay is moving into cryptocurrencies by integrating a crypto exchange service allowing users to buy Bitcoin (BTC) and Ether (ETH).

The firm officially announced on Wednesday that PicPay clients can now buy, sell and store two major cryptocurrencies, BTC or ETH, directly on its app. PicPay pointed out that its choice was due to the real use cases provided by these digital assets, including security and many other benefits. The firm stated:

“Blockchain technology, which is behind coins like Bitcoin and Ethereum, is already used in the real estate sector, the insurance industry and even the art market, through non-fungible tokens.”

The new crypto feature is enabled through a partnership with the major crypto company Paxos and allows customers to use Paxos-issued United States dollar-backed stablecoin USDP. Acting as a broker and custodian, Paxos is known for cooperating with some of the world’s biggest traditional financial firms like PayPal and Venmo.

The integration marks the first move for PicPay to introduce its 30 million customers with digital assets and help them understand how people can benefit from the potential of the growing asset class. The Brazilian fintech app is working on a feature to allow their clients to pay with crypto as well.

“PicPay is one of the most disruptive players in payments in Brazil, and our goal is to lead the growth of the crypto market,” PicPay’s head of crypto Bruno Gregory said. One of the major challenges associated with crypto adoption is eliminating its complexity by expanding information about the technology so that everyone can take advantage of the new asset class, he added.

Related: Brazil beams Bitcoin from space: A case for BTC satellite nodes

Cryptocurrency adoption in Brazil has been taking off recently, with major local crypto companies like Mercado Bitcoin actively expanding operations. Local lawmakers have been working to introduce crypto-friendly regulation, initiating a bill to legalize crypto payments in June 2022.

European Central Bank bets on CBDCs over BTC for cross-border payments

ECB’s interest in identifying the best cross-border payment solution stems from the fact that it serves as the central bank of the 19 European Union countries which have adopted the euro.

A recent study conducted by the European Central Bank (ECB) on identifying the ultimate cross-border payment medium crowned central bank digital currencies (CBDCs) as the winner against competitors, including banking, Bitcoin (BTC) and stablecoins, among others.

ECB’s interest in identifying the best cross-border payment solution stems from the fact that it serves as the central bank of the 19 European Union countries which have adopted the euro. The study, “Towards The Holy Grail of Cross-border Payments,” referred to Bitcoin as the most prominent unbacked crypto asset.

EBC’s opinion of Bitcoin as a bad cross-border payment system boils down to the settlement mechanism of the highly volatile asset, adding that:

“Since the settlement in the Bitcoin network occurs only around every ten minutes, valuation effects are already materializing at the moment of settlement, making Bitcoin payments actually more complicated.”

While the study highlighted Bitcoin’s inherent scaling and speed issues, it failed to consider the timely upgrades — Taproot and Lightning Network — that improve the network performance, concluding that “The underlying technology (and in particular its ‘proof-of-work’ layer) is inherently expensive and wasteful.”

On the other hand, the ECB recognized CBDCs as a better fit for cross-border payments owing to greater compatibility with forex exchange (FX) conversions. Two major advantages highlighted in this regard are the preservation of monetary sovereignty and the ease of instant payments via intermediaries such as central banks.

Related: Australian central bank governor favors private sector crypto technology

Contradicting the ECB’s reliance on CBDCs, Australian central bank Governor Phillip Lowe believed that a private solution “is going to be better” for cryptocurrency as long as risks are mitigated through regulation.

Mitigating risks related to crypto adoption can be fended off by strong regulations and state backing, stated Lowe, adding:

“If these tokens are going to be used widely by the community, they are going to need to be backed by the state or regulated just as we regulate bank deposits.”

In Lowe’s view, private companies are “better than the central bank at innovating” the best features for cryptocurrency.

Croatian retail giant sees rise in crypto payments despite the bear market

Croatia has been enjoying the growing cryptocurrency adoption despite the ongoing crypto winter, Konzum’s director of business applications Ines Barbir said.

Payments in cryptocurrencies like Bitcoin (BTC) have been on the rise at Croatia’s largest supermarket chain Konzum this year despite the ongoing bear market.

After debuting crypto payments in 2021, ​​Konzum has seen an increase in purchases made with crypto payments, the firm’s director of business applications Ines Barbir told Cointelegraph.

​​Konzum officially started accepting cryptocurrencies as payment for its products in December 2021, allowing customers to pay online with nine cryptocurrencies like BTC and Ether (ETH) as well as Tether (USDT) and USD Coin (USDC) stablecoins.

The supermarket chain has since expanded the crypto payment option to several self-checkout cash registers in physical pilot stores. Konzum is also still working with the local crypto payment firm Electrocoin to bring crypto payments to all 700 physical stores across Croatia.

According to Barbir, the rollout of the new payment method was implemented successfully, and Konzum has been working on expanding its crypto payment option. The executive didn’t specify the exact numbers of payments’ volume growth since debuting crypto payments.

A spokesperson for the firm pointed out that rising crypto payments on Konzum come in line with the growing adoption of crypto in Croatia, stating:

“Regardless of the bear market, we are satisfied with the interest which keeps on growing. The overall interest in cryptocurrency payments continues to increase steadily as well as the interest for the implementation of cryptocurrency payments in Croatia.”

The representative noted that Croatia is “at the top in the European Union” when it comes to the level of crypto adoption. That is “partly thanks to the rise of fintech companies like our partners at Electrocoin,” the spokesperson added.

The representative smentioned some uncertainty around crypto payments, stating: “The reason for this is mainly due to the insecurity and suspicion in new technologies, but also due to the state of regulation of the crypto industry.”

Related: European banking regulator sees ‘major concern’ in retaining staff to handle crypto: Report

The government of Croatia has been somewhat silent about cryptocurrency regulation in recent years, while local crypto advocates have been working towards self-regulation. In 2018, the National Bank of Croatia emphasized that cryptocurrencies were not legal tender in the country, nor were they recognized as foreign currency or payment instruments.

Despite some level of apparent uncertainty around crypto, Croatia has emerged as one of the most crypto-prepared countries in the world. According to a report by the forex education platform Forex Suggest, Croatia has a crypto-readiness score of 6.2 out of 10, alongside countries like the United Arab Emirates, Georgia and Romania.

The Costa’ Bitcoin on the rise: Major chains give Gibraltar a BTC boost

Major franchises in Gibraltar including Costa Coffee, Card Factory and Hotel Chocolat now accept Bitcoin over the Lightning Network or on-chain.

“But you can’t buy a coffee with Bitcoin,” the Bitcoin (BTC) critics chanted. Gibraltar, a tiny British Overseas Territory in Europe just blew a hole in that FUD as popular coffee chain Costa Coffee now accepts Bitcoin over Lightning. 

Hotel Chocolat, Card Factory and the Gibraltar bakery also accept Bitcoin as a currency in the British Overseas Territory. The well-known franchises take advantage of Bitcoin’s Lightning Network (LN) to accept customers’ money. The LN is ideal for microtransaction cappuccinos, postcard payments or ice cream investments as reporter Joe Hall found out during a Gibraltar shopping spree.

Lightning-enabled Bitcoin merchants in Gibralatar. Source: CoinCorner

Payments are instant, frictionless and charge merchants less than the typical Mastercard or Visa payment rails. Neil Walker, managing director at Sandpiper GI — the group managing the retail franchises — told Cointelegraph that when using a Lightning-enabled card, “It’s no different to using a contactless credit card.”

“It is just as quick you can tap and pay contactless credit cards, you can tap and pay lightning, scan a QR code. And whilst I haven’t timed it, I reckon it’s almost exactly the same speed.”

CoinCorner, a Bitcoin exchange on the Isle of Man, partnered with Sandpiper GI, to help in equipping merchants with Bitcoin Lightning point of sale (PoS) devices.

Walker shared that even for Bitcoin naysayers, the ease with which customers and merchants can transact is a no-brainer. He told Cointelegraph, “whether you believe in Bitcoin or not, you can use the lightning network to cut your transaction costs and to pay via mobile.” Given that it’s a neutral payment rail, he said that customers can traverse currencies easily:

“For a long time, the idea of paying with bitcoin seemed alien to both businesses and individuals, but with the launch of The Bolt Card and the ability to “tap and pay” via lightning, the user experience is quick, easy and familiar to everyone.”

Gibraltar welcomes 8 million tourists onto the rock per year, from countries including the United States, Canada, South Africa and the United Kingdom. Plus, Walker estimates that roughly 15,000 cross-border workers cross over from Spain to work in Gibraltar on a daily basis. Gibraltar uses the Gibraltar pound while Spain uses the euro, so currency conversion, remittance and tourism could be strong drivers for adopting a global, borderless currency.

To pay for a coffee in Gibraltar, customers can now scan a QR code or simply tap to pay using an NFC-enabled Bitcoin Lightning card. The most popular payment choice among Satoshi spenders is the Bolt Card, a CoinCorner innovation. Molly Spiers, head of marketing at CoinCorner told Cointelegraph that the “Bolt Card has been a driving factor for Bitcoin adoption.”

Bitcoin adoption in British Overseas Territories is booming, boosted by the ease of tap-and-go payments. Over on the Isle of Man, an island whose population doubles Gibraltar’s 35,000, Bitcoin adoption “has exploded over the last 6 months,” Spiers told Cointelegraph. “We’ve gone from around five businesses accepting Bitcoin, to now nearly 10x that!”

Related: Busking on Bitcoin: How Lightning Network outperforms Ethereum for tipping

While the Isle of Man has made itself the mantle, “Bitcoin Island,” Walker quips that Gibraltar could be called “Bitcoin Rock.” Indeed, the household names of Costa Coffee and Hotel Chocolat join a growing list of merchants that accept Bitcoin in Gibraltar. Essardas Luxury, for example, has accepted Bitcoin since early 2021, while smaller independent shops accept Bitcoin and sometimes cryptocurrencies including stablecoins upon request.

Workers in volatile economies most likely to take pay in crypto: Report

There has been an increase in employee crypto payments for the first half of this year despite the market crash, according to Deel.

Residents in nations with volatile economies are more likely to receive their pay in cryptocurrency, according to global hiring platform Deel. 

In its “State of Global Hiring Report” shared with Cointelegraph on Thursday, the firm found that despite the 2022 bear market, crypto represented 5% of all global payments withdrawn from the platform every month, up from 2% in the second half of 2021. 

Residents in nations with volatile economic situations and currencies were most likely to make their payments in crypto, according to the report. These included countries in Latin America (LATAM) and Europe, the Middle East and Africa (EMEA).

Crypto withdrawals in the LATAM region represented 67% of the total, with EMEA countries at 24%. Those from the North American region represented just 7% of the total for crypto payments. The Asia Pacific region was even lower with just a 2% share of the whole.

In terms of asset type, Bitcoin (BTC) remained the crypto of choice, making up 47% of the total. The second choice of digital asset for payments was Circle’s USD Coin (USDC) with 29%, followed by Ether (ETH) at 14%. Tether (USDT) did not make the list.

Shannon Karaka, head of expansion ANZ of Deel, told Cointelegraph that in general, “we find that people typically only withdraw part of their pay in crypto, which could mean they are still using it as a long-term investment vehicle as well,” before adding:

“From what we’ve seen in the field, getting paid in crypto is most attractive to three main groups of people: those who use the tool to hedge against local currency instability, those working in jurisdictions with dated local banking systems that can slow down payroll and those who are adding some crypto coin to their investment portfolio. The majority of our crypto withdrawals are coming out of LATAM and EMEA, which is likely driven by the first two use cases.”

Deel sourced the data from over 100,000 cross-border worker contracts on the platform between January and July 2022. The firm helps businesses compliantly hire, onboard and pay people in different countries. It noted that LATAM tops the list of regions hiring internationally.

Related: Crypto education can bring financial empowerment to Latin Americans

Surging inflation is a concern for many countries in the Latin American region. Venezuela, Argentina, Chile, Brazil and Paraguay all have double-digit inflation, according to Trading Economics.

Diminishing purchasing power using their own fiat currencies is likely to have influenced the increase in crypto payments to regional workers.

Technicals suggest Bitcoin is still far from ideal for daily payments

Even with the rise of layer-2 solutions, many experts believe Bitcoin may have missed the boat as a currency for day-to-day remittances go.

It is no secret that a vast majority of investors, both from the realm of traditional as well as crypto finance, view Bitcoin (BTC) as a long-term store of value akin to “digital gold.” And, while that may be the dominant narrative surrounding the asset, it is worth noting that in recent years the flagship crypto’s use as a medium of exchange has been on the rise.

To this point, recently, the central bank of El Salvador revealed that its citizens living abroad have sent over $50 million in remittances to their friends and family. To elaborate, Douglas Rodríguez, president of El Salvador’s Central Reserve Bank, announced that $52 million worth of BTC remittances had been processed via the country’s national digital wallet service Chivo through the first five months of the year alone, marking a 3.9%, $118 million increase in value when compared to the same period in 2021.

Bitcoin as a payment medium has been on the rise, as is made evident by the noticeable increase in the adoption of layer-2 payment protocols such as the Lightning Network. To this point, BTC transaction volumes are currently up by a whopping 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 when compared to other networks like Ethereum, Solana or Cardano, Bitcoin still lags behind in key areas including scalability and transaction throughput.

Is Bitcoin’s utility as a payment method overrated?

According to Corbin Fraser, head of financial services for Bitcoin exchange 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, since 2016, the Bitcoin community has done everything possible to explain to its users that they should absolutely 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 re-introduce the concept of daily payments to its users and other communities focused on these use cases which have found a home under various other banners.”

Fraser stated that when one takes into consideration the difficulty side of things, such as the hassles involved with ordinary crypto users deploying layer-2 solutions like the Lightning Network to process payments, the situation becomes all the more complex. “Competition in low fee, high throughput chains has increased considerably in the past two years. Bitcoin is on its heels when it comes to shifting 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 start to flock to the blockchain for daily transactions, its memory pool will fill up, causing the fee market to expand, pricing out more and more users and creating a negative experience for users intending on using 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 devs could make some changes to further enhance utility for payments. If the BTC community can rally behind the payments use case, it is possible consensus could be reached.”

A somewhat similar opinion is shared by Toya Zhang, chief marketing officer for cryptocurrency exchange Bit.com, who told Cointelegraph that even though Bitcoin was initially designed as a payment currency, the development of different protocols and stablecoins has made it highly 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, limitations related to confirmation times or price volatility are not an issue. The reason for Bitcoin to not be able to fulfill its role as a remittance medium is very simple, Bitcoin is too pure of an asset. It will only fulfill its original mission if all payment-centric cryptocurrencies fail, the possibility of which has most likely sailed.”

BTC transaction numbers appear shaky

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

To this point, he noted that from 2018–2021, Bitcoin’s micropayments remained absolutely 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 approximately 80 million from October 2021 to March 2022. In this regard, 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 for setting up nodes and utilizing 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 enterprises to integrate more into these products and services.”

That said, he conceded that BTC becoming a means of daily payment depends on the asset fulfilling three core conditions: whether its infrastructure is mature enough to achieve low cost and convenient use, whether there is enough use such that large enterprises, institutions and national governments are willing to use the asset and lastly, whether it can deliver a good enough level of security and privacy.

 A pawn shop in the Philippines, a common location for sending and receiving remittances.

Yohannes Christian, research analyst for digital asset exchange Bitrue, noted that despite being one of the most secure networks in existence today, Bitcoin’s remittance capabilities 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 works out to 3,500 to 4,000 transactions in a 10-minute block). Furthermore, when this transaction number peaked, 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 during the height of the 2017 bull run. This congestion issue can create a systematic problem for day-to-day Bitcoin payments.”

And, while the development of layer-2 solutions may help solve some of the scalability problems in question, he believes the network still needs some time before it can become ready to be used for daily transactions. To put things into perspective, the Bitcoin network currently has a 10-minute block transaction with only a 1MB block size. In comparison, its close alternative, Bitcoin Cash (BCH), has a 2.5-minute block transaction and 32MB 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 is easy to build additional utility and scalability on top, adding:

“That’s what we’re seeing in other blockchain ecosystems and what we can expect for Bitcoin as well. When it comes to global remittance capabilities Bitcoin presents the strongest capability given its decentralization, long term durability, uptime and accessibility. The remittance can be in BTC, or through stablecoins built on Bitcoin layers.”

Ali said that despite there being a decade worth of Bitcoin development, we’re still in the early innings of the growing ecosystem. This is because building on the Bitcoin ecosystem has traditionally been hard given the base layer was very simple and lacked advanced programming features. 

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However, now with various Bitcoin layers like the Lightning Network, Stacks and RSK, developers can build more complex applications with relative ease. “Developer traction is an early indicator of increased app development and usage by mainstream users and we’re beginning to see this now starting 2021 or so,” he concluded.

Therefore, as we head into the decentralized future of digital finance, a growing number of countries, institutions and businesses appear to be willing to use Bitcoin as a settlement currency due to a variety of different factors. However, owing to the fact that BTC still experiences great volatility in its day-to-day price action, it is still limited in its overall scope of usability, especially as a payment medium. Thus, it will be interesting to see how the future of the digital asset plays out from here on end.

Vladimir Putin signs bill banning digital assets as payments into law

Russia’s Parliament is also considering two other bills related to digital assets: regulating miners’ activities, and requirements for firms handling crypto transactions.

Russian President Vladimir Putin has signed a bill into law prohibiting digital financial assets as payments more than a month after it was introduced to the country’s lower chamber of Parliament.

In a Thursday update, the Russian State Duma noted that Putin signed a bill suspending certain parts of an existing federal law “on banks and banking activities,” effectively making it illegal for people to use cryptocurrencies to pay for goods and services. The initial draft of the bill from June 7 specified the “prohibition against the introduction of other monetary units or monetary surrogates on the territory of the Russian Federation.”

The Duma chair approved the draft bill on June 8, and following revisions and other considerations, the upper chamber of Parliament, the Federation Council, approved the legislation on July 8. Under the Constitution of the Russian Federation, all bills need to be approved by both chambers before being signed into law by the president.

Cointelegraph reported in June that the bill introduced the concept of an “electronic platform” — a financial platform, investment platform or information system in which digital financial assets are issued. Under the recently passed law, these platforms will likely be required to submit transactions and actions to the Russian central bank’s registry as part of the national payments system.

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Russia’s Parliament is currently considering two other bills related to digital assets. One will potentially regulate crypto miners’ activities in the country, requiring them to follow a certain procedure to register as sole proprietors or self-employed. Another, named “on digital currency,” proposed requirements for firms handling digital asset transactions, including licensing and disclosure about risks and data privacy.

Crypto payments gain ground thanks to centralized payment processors

Mastercard, Visa, PayPal and several others have paved the way for crypto to be used as a tool of payment for buying daily needed goods.

The cryptocurrency market has grown beyond many people’s expectations over the past decade. The nascent industry has managed to change mainstream perception quite significantly, especially in 2021, which saw many traditional financial institutions adopt crypto in one form or another.

Some of the biggest public companies such as MicroStrategy started using Bitcoin (BTC) as a treasury hedge, while the likes of PayPal, Mastercard and Visa paved the way for the common public to use crypto as a form of payment. While many experts are still skeptical about the use of crypto as a form of payment, given its price volatility, recent market trends and data indicate that crypto is increasingly being used to buy daily-use items.

A recent report from fintech payment infrastructure provider checkout.com that surveyed 33,000 business leaders revealed a rise in consumer interest in paying in crypto. The report indicated that 40% of 18–35-year-old consumers want and plan to use cryptocurrencies to pay for goods or services within the next year. That’s up from less than 30% last year.

The rise of digital payments aided by the COVID-19 pandemic has only made it easier for crypto to become more mainstream. People are more familiar with QR code payments today, which makes it easier for mainstream payment processors such as Visa and Mastercard to introduce crypto payments on its network without having to build a separate infrastructure.

Miles Paschini, CEO at fintech bank FV Bank, told Cointelegraph:

“The use of cryptocurrencies as a form of payment has progressed in the past year but primarily into the area of settlement layers, advancements have been made with stablecoins, in particular with USDC and to some extent XRP. The developments we have seen in the settlement layer are not exactly visible to the retail customer. I think we will see more of this type of settlement layer integration in the future as stable similarly similar become more efficient and programmable than traditional settlement systems.”

The growth of crypto payment networks and public interest

According to a report from Visa, its network processed over $1 billion in crypto transactions in the first quarter of 2021, which increased to $2.5 billion by the first quarter of 2022. The report highlighted that crypto payments have become increasingly popular with the rise in the use of stablecoin payments.

Mastercard partnered with USD Coin (USDC) stablecoin issuer Circle to facilitate crypto-based payment options for millions of users.

With the rise in crypto-linked debit cards, Nexo has come up with its crypto collateralized credit card in association with Mastercard. Nexo has issued 55,000 cards since its launch in April that could be used at around 92 million merchants worldwide, allowing investors to spend up to 90% of the fiat value of their crypto.

Antoni Trenchev, co-founder and managing partner of Nexo, told Cointelegraph about the rise of crypto as a form of payment, claiming crypto-linked cards are making it easier for retail customers to spend their digital assets just like fiat. He explained:

“The concept of HODLing is well understood in crypto, but with crypto-backed cards, it is now possible to hodl your digital assets while also using these to spend on day-to-day transactions. This, in turn, has carved a pathway whereby crypto can be both an investment and a form of payment, increasing its utility as an asset class.”

He added, “Crypto cards offer the possibility of spending your crypto directly, which automatically converts your crypto from a linked wallet into the fiat currency needed to pay.”

Many analysts also like to point to the rise in stablecoin adoption as a key metric of crypto payments. Brandon Rochon, a data scientist at Web3 infrastructure provider Covalent, explained how the stablecoin USDC has managed to see over a 10% rise in adoption year-on-year (YoY) despite a downturn in the market. He explained:

“Looking at USDC, its supply grew from $373 million in July 2019 up to $1.0 billion in July 2020, representing a ~168% increase in the one-year time frame. This same 168% growth was achieved in the first three months by October 2020. Over the next year, the supply grew at a rate of 2500% to ~$25 billion, at which point Mastercard stepped in and launched its simplified payments card offering with Circle in July 2021. Since this point, stablecoin supply has continued to grow at a pace over 120% YoY despite the market downturns in the -50%+ range, signifying strong utility.”

Omid Malekan, adjunct professor at Columbia Business School — where he teaches crypto — believes that stablecoin is a fair metric to measure the payment use of crypto at present. He told Cointelegraph:

“One way to measure crypto use in payments is to track stablecoin volumes since those serve a much more limited function than pure crypto coins. On-chain volume for payments has been very strong lately. Most of that is to accommodate speculative activity (people buying and selling crypto, borrowing in DeFi, etc) but payment is a payment, and a substantial part of the traditional system’s payments volume is also related to capital market activity.”

Crypto payments beneficial for merchants and consumers alike

While the infrastructure side of crypto payment has seen tremendous growth, it would not be possible without the willingness of merchants to accept it. Several surveys and reports have highlighted that merchants have benefited equally from the crypto payment integration despite technical barriers and complexities.

Another report from PYMNTS highlighted that more than 75% of the customers in the United States are looking forward to using crypto as a form of payment in 2022. While 85% of businesses with over $1 billion in annual sales are integrating crypto payments to gain more customers, many other merchants have said their overseas transactions increased and they found a new customer base after crypto payment integration.

The key reasons listed by merchants for accepting cryptocurrencies as payments include significant cuts in transaction costs, elimination of middlemen and on-boarding of new customer bases from around the world.

Stablecoins form a significant chunk of expenditure by consumers. However, many analysts also point toward significant growth of layer-2 networks over the past year. For example, the Lightning Network, the secondary layer on top of Bitcoin, has seen tremendous growth over the past year. Bitcoin Lightning Network capacity grew past 4,000 BTC, first breaking the 1,000 BTC barrier in August 2020 and the 2,000 BTC barrier in July 2021. The capacity has doubled in the space of 18 months.

Andry Lebedev, co-founder of Web3 payment infrastructure firm Swipelux, told Cointelegraph:

“At the moment, there is a rerolling of transactions from L1 to L2 thanks to the introduction of zk-rollups and optimistic rollups. Consequently, we see significant growth in transactions for the protocols and stabilization of transactions for Ether and Bitcoin at 125,000 and 240,000 transactions per day, respectively.”

He added that there has been an “upward trend in the structural change of cryptocurrency, which instead of transfer of value becomes a form of payment in the emerging Web3.”

Crypto payment’s popularity depends on the overall adoption of cryptocurrencies; the more people that are aware of and understand the nascent financial asset class, the more people will adopt it, as proven by several studies mentioned above. The volatility aspect of cryptocurrencies could be further dialed down by converting them into stablecoins.