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Ask CryptoVantage: Is Bitcoin Actually Any Good as a Form of Payment?
Bitcoin adoption is steadily increasing amongst both businesses and consumers. But with the rise in popularity comes an important question about whether bitcoin can actually replace, or compete with, other common payment methods that are used for day-to-day transactions. In this article we discuss what makes a good payment method, some of the advantages and disadvantages of using bitcoin for different types of transactions, and a new technology that could help make bitcoin a viable form of payment – the Lightning Network.
Properties of Good Payment Methods
When you consider going to the store to purchase something, how do you decide what method you’ll use to pay for your goods? There are a few key properties that make a good payment method, which bitcoin would need to possess if it is to be used for day-to-day transactions.
- Convenience. When we make day-to-day purchases, we typically choose (perhaps unconsciously) the most convenient method of payment. For example, tapping a credit card to pay for small purchases is an extremely popular choice of payment method because it’s so easy to do.
- Speed. For day-to-day purchases, the transactions need go through quickly. For example, if it took credit card companies an hour to confirm that the payment has been made, credit cards would no longer be a popular payment method for small purchases. The less friction involved in settling payments, the better.
- Low transaction fees. It’s imperative that transaction fees remain low if a payment method is to be used for small purchases, otherwise it will quickly become more or less useless as a payment method.
- Ubiquitous. Your choices of payment methods are limited by what the business you are buying from will accept. Payment methods must be accepted widely in order to be useful.
Drawbacks of Bitcoin as a Payment Method
Bitcoin currently has a few main drawbacks that make it difficult to use for day-to-day transactions. But these drawbacks represent areas of opportunity for innovating on bitcoin in the future.
Firstly, the process of purchasing, storing, and transacting with bitcoin is unfamiliar to most people. There is an initial learning curve involved in using bitcoin as a payment method, which makes it (for now) less convenient than other more common forms of payment.
Secondly, bitcoin payments take approximately ten minutes to be confirmed, and higher value payments can take close to one hour. This is because, after your payment has been added to a block, additional blocks need to be mined before the payment is deemed to be secure. This is a major hurdle that needs to be solved if bitcoin is to become a useful payment method for day-to-day transactions.
