The Key Reason Why Bitcoin Struggles as a Payment System

bitcoin payment

Bitcoin offers a great many advantages in comparison to traditional banks. As the prices of the Bitcoin continued to move up at skyrocketed speeds, Merrill Lynch, a financial advisory firm, pondered over the never-ending debate with regards to the role of Bitcoin in of the global financial system.

The firm suggests that bitcoin has leveraged the ‘first-mover advantage’, but there are still doubts about the effectiveness of the digital currency as a payment system.

Analysts all over the world are speculating about bitcoin sustainability, but most think that the most crucial technical issue is the cryptocurrency’s scaling capacity. Moreover, they believe that the major roadblocks to bitcoin’s scalability are its expensive and slow nature in comparison to more modern platforms of payment processing.

Cost of Transactions

As per a team from Bank of America, against each transaction of bitcoin, there is a fee to get the bitcoin blocks validated. The fee, in the first quarter of 2017  was US$2.40 per transaction,  significantly up from 24 cents in the 2016’s last quarter.

The team believes that the main reason of having a fee is that the larger the data size of the transaction is, the longer it will make miners to actually validate the data. While the fees are not strictly imposed such as transaction fees in the case of traditional banking, if an investor does not pay the required fees, they may face a greater risk of transaction remaining unprocessed by a miner.

Similarly, in an extension to the transaction fee, Merrill Lynch – Bank of America – approximates that the basic cost of every transaction will be much higher, keeping the economics of Bitcoin mining in consideration.

Currently, the reward associated with every newly mined block is 12.5 Bitcoins. In terms of current prices, this makes around $US75,000.

Transaction Speed

Speaking of the speed of transaction, BAML confirms the median time of confirmation of a Bitcoin transaction is around ten minutes with the total number of transactions being conducted in a day approximating to 300,000.

In comparison, BAML states that Visa, a leading payment method, processes an average of 2,000 transactions per second with a maximum of capacity of 56,000 transactions per second.

This shows that there is a need of making significant speed upgrades to ensure meaningful adaptation of Bitcoin as a payment platform. The conclusion presented by Bank confirm Business Insider’s research which depicted that Bitcoin is hardly being utilized as a payment form and the majority of the increase volume of transaction belongs to Bitcoin trading.

The analyst at the BAML says that Bitcoin is a significant proof of concept that anything such as its blockchain can really work. However, till today it did not really make much headway in terms of its obvious agenda, which is to provide a ‘peer-to-peer’ electronic cash version.

With the popularity of digital coins, particularly Bitcoin, a lot of analysts are now considering the role of this cryptocurrency in the overall financial system of the world.

 

 

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