Why Does Bitcoin Fail As a Payment System?
Right back from when Satoshi Nakamoto wrote the white paper on Bitcoin, he envisaged it as a payment system and a currency that would operate totally online. However, since its early days, a lot has happened, and Bitcoin’s core function has shifted substantially away from that ideal.Many now see and use Bitcoin as a store of value, and it has become an investor’s dream as its volatility is mostly projected upwards, gaining hugely compared to any other asset out there.But as a payment system, Bitcoin is still heavily flawed, and there are core issues that are stopping its growth in this direction. Bitcoin’s scalability is being hampered because it is too slow and expensive relative to more conventional payment processing platforms.
Cost of transactions
Analysts at Bank of America Merrill Lynch have weighed into the debate around Bitcoin’s role in the global financial system.Their first port of call was the Bitcoin transactions, which is the fee miners charge to validate a Blockchain transaction.In the first quarter of 2017, the fee was $2.40 per transaction — up significantly from $0.024 cents in Q4 2016.“One of the reasons there is a fee is because the larger the transaction data size, the longer and more energy it will take miners to validate the data,” Analysts at Bank of America Merrill Lynch said.
“Fees are not strictly enforced like transaction fees in normal banking, but if you don’t include appropriate fees, there is a serious risk that a transaction won’t be processed by a miner.”
The economics of mining are complicated and necessary, but they are playing their part in slowing the adoption of Bitcoin as a payment system.Right now, the reward for each new block mined on the Blockchain is 12.5 Bitcoin. At current prices, that’s around $75,000.According to the analysts, there are around 2,000 Bitcoin transactions in each block mined so based on that information, a baseline price of $37.50 ($75,000/2,000) per transaction can be derived.While not calculating specific figures, the analysts said it's likely the mining reward factors into the real economic cost of a Bitcoin transaction.
Speed of transactions
Looking deeper into the data, the analysts also examined transaction speeds. They came up with a wait time average of about 10 minutes for the 300,000 transactions per day.They also compared this to Visa’s payment system which processes an average of 2,000 transactions per second, with a maximum capability of 56,000 per second.“Assuming 20,000 retail transactions are processed every second, it would take about 100 minutes for one second’s worth of transactions to be processed on the Bitcoin Blockchain,” the analysts said.That suggests significant speed upgrades will need to be developed before Bitcoin can be meaningfully adopted as a payments platform.Comparing costs, analysts said standard transactions fees for transaction processors such as Visa and Mastercard range from 0.2 percent to five percent depending on factors such as the merchant’s size and location.So taking into account Bitcoin’s $2.40 transaction fee plus the 0.20 percent charge applicable in the incumbent industry, the analysts said the minimum size of a transaction would have to be $1,200 for Bitcoin to break even.
In conclusion
The analysts at Merrill Lynch thus concluded that Bitcoin is a wonderful proof of concept for the underlying technology, which is the Blockchain.“However, so far it looks to have not made much headway in its obvious agenda, to provide a ‘purely peer-to-peer version of electronic cash.’”
My biggest complaints are the time it takes to transfer, and the high fees charged. At busy times it is ridiculous.
For me one of the problem too is "paiment" in the buisness context is not only a transaction, its more like a bill with a item associated with the transaction, and for merchant they want also maximum if tracability for customer base, and to deal with taxes and all this.
And also running a node is quite costly, and its very unclear if bitcoin is an unit of value or speculative asset, which can be a pb both for the legal status of the transaction and lack of price stability, which make it hard to get popular in e commerce industry.