Bitcoin payments are being compromised by a centrally stable coin.

Just down the road from Piccadilly Circus and Shaftesbury Avenue, the Century Club in London is one of the largest private members clubs in Soho and the rest of the UK capital.

For many, these ancient cities are an outdated tradition, a symbol of privilege and an elite based on colonialism and slavery. For others, they are a discreet place to conduct business away from the distractions of the workplace and noisy offices.

Typically slow to innovate, it was refreshing to see Century Club install BTC terminals last month so members and their guests can settle their accounts in cryptocurrency.

Founded in 2001, this “century” for the creative industry, the club engaged the payment provider Musquet to provide terminals, and they have gained popularity among members, many of whom are of the demographic invested in cryptocurrency.

Tony Pearce, CEO of Web3 company Reality+, was one of the first members to use the terminals. He pointed out that while Bitcoin is getting all the attention and attention from the general public, stablecoins are actually more prevalent in paying for things.

Although there are a few bars in London that accept BTC, I think stablecoins are a more widespread form of payment using digital currencies. He said that this shift indicates that a stable coin has overshadowed BTC in daily transactions.

Pearce is correct in referring to the payment method used below BTC. BTC fees are not only growing, they are stagnating at a high level.

According to the latest statistics from the US Federal Reserve, the use of cryptocurrencies for transactions (as opposed to investments) will halve by 2023, to just 1% of the population.

The rise and fall of stablecoins

According to Coinbase, the stablecoin market will settle more than $10.8 trillion in transactions in 2023, and this figure is growing at 17% year-on-year. That compares to more than $8.4 trillion in transactions in the Bitcoin network. According to Chainalysis, less than 2% of Bitcoin transactions will be used for trading by 2023.

Unlike transfers or exchanges, it is difficult to identify transactions for payment. However, Visa's payment estimate, which aims to separate Statcoin payments from normal transaction volumes, suggests that $2.5 trillion worth of Stablecoin payments were completed in the 12 months to June, representing a 10x increase in the number of Statcoin payments in 2020.

That means Stisticon payments will surpass PayPal's $1.5 trillion in payments by 2023, and are fast approaching MasterCard's $9 trillion.

“While major cryptocurrencies such as Bitcoin dominate the headlines, stablecoins outpace all others in usage. Their popularity in the transaction industry reflects the high level of service they provide. They continue to play a major role in the widespread adoption of crypto for non-commercial everyday transactions,” said Chinalysis Research Director. Kimberly Grauer said.

Are BTC payments dead when it comes to stablecoins dominating the cryptocurrency payment landscape?

Stablecoins like USDt, USDC and BUSD offer many clear advantages over BTC for payments. Price stability means traders and consumers avoid the volatility associated with BTC.

Many stablecoin transactions occur on efficient blockchain networks such as Ethereum Layer 2s, BNB Smart Chain, Tron and Solana, which offer competitive transaction costs and faster block confirmations (compared to Bitcoin), enabling faster payments.

Stablecoins, however, are far from a cypherpunk dream digital currency. The two largest providers, Circle's USDC and Tether's USDt, are decentralized projects with US dollar reserves. Signs may be suspended at the request of the authorities.

Major stablecoins, therefore, require much more trust from users than Bitcoin, but they seem happy to do so. Stablecoins like USDC are backed by reserves and regularly audited, which fosters trust between users and regulators. And Tether… well, it hasn't collapsed yet.

Bitcoin payments and block times

The Bitcoin network itself (unlike Lightning) has long been impractical for low-cost retail payments. In 2021, transaction fees sometimes averaged over $60, and while things have improved since then, there are still price hikes. The payment method is notoriously expensive and slow.

BTC block time is 10 minutes on average and multiple verifications are required for security, which can cause transaction processing delays. This makes it ideal for real-time payments compared to stablecoins on other networks.

The world's most popular stablecoin, USDt, debuted on the Bitcoin Omni network in 2014, and was the most used until it was overtaken by Ethereum and Tron. USDt was discontinued on Omni last year.

For the average user, setting up and using BTC wallets can be intimidating compared to the user-friendly stablecoin wallets integrated into popular fintech apps. Stablecoins also benefit from simple fiat on and off ramps that facilitate their adoption. You can deposit $100 and get something close to 100 USDC.

Despite these problems, BTC payments are not completely dead. They are simply used for high value payments.

Big companies like PayPal and Tesla have (at least for the time being) accepted BTC payments; The recent presidential campaign was very happy to receive them. As a stablecoin on the rise, BTC continues to be a symbol of innovation and freedom, making it attractive to forward-thinking businesses. Unlike those popular centralized coin providers, censorship is impossible.

Can the Lightning Network Make Bitcoin Payments Great Again?

Bitcoin's scalability issues are being addressed by layer-2 solutions such as the Lightning Network (and some EVM-based Bitcoin L2 chains). By enabling faster and cheaper transactions, the Lightning Network still has the potential to revitalize BTC as a potential payment method.

Companies like Strike and Cash App demonstrate the potential of BTC in real-world applications.

According to CoinGate's latest numbers, the share of Bitcoin payments made through the Lightning Network will reach 5.98% in 2022, 7.95% in 2023, and 14.51% in 2024 so far.

It's difficult to get a total US dollar figure for Bitcoin payments because of the open network and trying to track what activity is going on, retail or otherwise. However, the graph below sheds some light on the differences between Bitcoin and Lightning Network and their respective capabilities.

The Bitcoin network handles large volumes of large transactions and is often used for significant transfers or settlements. In contrast, the Lightning Network is optimized for small, frequent payments and offers faster transaction times and lower fees.

While the Bitcoin network remains dominant for onchain transactions, the Lightning network is seeing growth, especially for situations requiring micro-transactions and fast payment confirmations.

There are initiatives to make Lightning easier to use, such as Lightspark, which removes the complexities that come with implementing and managing a Lightning node to securely send and receive transactions.

The firm has built Lightspark Predict – an AI-based smart engine that plans to optimize liquidity requirements and routing in real-time to maximize transaction success rates and completion times.

While Lightspark's mission to mass accept BTC for payment challenges the dominance of stablecoins, it is unlikely to render them obsolete.

And the use of Lightning is increasing from a low level, and the network has struggled to gain mainstream adoption due to problems with the technology and the volatility of Bitcoin's retail users. Why spend BTC today when it could be worth 30% more tomorrow? Why accept it for payments when it can be worth 30% less?

UK-based crypto influencer Johnny Fry gave evidence to the UK Parliament's Digital Assets Billing Committee in December, the publisher of the DigitalByte newspaper, which provides fact-checking attempts to use BTC as a payment method. .

“Due to its volatility, BTC is not a suitable payment method for many, as users can receive more or less than they expect, and users can also get paid more than they expect.

However, Bitcoin has some advantages

Tether and Circle declined to comment for this article, but Claire Cummings – at Cummings Pepperdine, London-based advisers on crypto, (UK regulator) FCA and Real World Assets Advisors – said that Bitcoin actually has the advantage of making payments in many sectors. The world because it's not in the regulators hair.

“The main difference from a UK regulatory perspective is that the FCA has said that BTC is not a regulated asset. In contrast, stablecoins are at the top of the list for the new UK rules.”

“Although stablecoins are generally given a legal entity, there is no such entity behind BTC. There's no Satoshi Limited, for example,” she said.

Then there are the widely publicized BTC stories of cross-border payments, particularly in regions with unstable currencies or limited access to banking.

El Salvador's history is well-known since it adopted BTC as legal tender, but even there, wallet problems and other issues meant that Salvadorans were slow to adopt the cryptocurrency.

Fry said bitcoin could still be used as a base currency, however, through cards that automatically convert to local fiat when spent.

“Using BTC and many other cryptos is as easy as using a MasterCard or Visa debit card accepted by millions of merchants worldwide,” he said.

A store of value, not a payment method.

Jason Meyers, founder of Auditchain Labs AG and developer of Pacioli.ai, says Bitcoin has become a store of value rather than a currency.

“The evolution of BTC payments began in 2013 with BTC Suisse Zug, Switzerland, and was eventually used to pay taxes in the Canton of Zug. As the price increased each cycle and the supply began to decrease, the use of BTC moved from a currency to a store of value.”

“This has fundamentally changed when the 12 BTC ETF is approved in January 2024, leaving stablecoin as the preferred exchange, as users prefer not to spend BTC in a bull market, making a more stable rail preferred,” he concludes.

But as governments around the world consider adopting Bitcoin as a reserve asset to help back their currencies, Bitcoin may get the last laugh. Bitcoin is already supporting the fortunes and portfolios of many of the most frequent stablecoin users.

“It's not a zero-sum game. As BTC continues to be the godfather of cryptocurrencies, stablecoins have carved out an important niche in the digital payments landscape, said Roshi Sharma, partner at LawBEAM – a law firm that advises crypto and blockchain clients. “We are seeing a symbiotic relationship where BTC's strength as a store of value meets a stablecoin's utility for daily transactions.”

“The market has evolved organically with BTC as the anchor of the crypto ecosystem and stable science for commercial practical rails. For example, my company accepts stable coin payments for our legal services, but does not accept payments in BTC.”

So stablecoins and BTC seem to play complementary roles. Stablecoins excel in applications where stability and speed are key, such as day-to-day purchases and transactions. BTC, in contrast, shines as a decentralized, censorship-resistant payment option and long-term store of value.

Stablecoins are often used as a stepping stone to BTC. Many users start their cryptocurrency journey with statcoins due to their familiarity with fiat currencies, moving to BTC for investment or other purposes. This symbiotic relationship suggests that both technologies can coexist and thrive.

But Bitcoiners sometimes find it difficult to accept any competition. Rajesh Sinha is the founder of Launchnodes, and his words probably resonate with many when he dismisses stotcoins as fiat imitators.

“BTC and stablecoins serve completely different purposes. Stablecoins mirror fiat currencies by inheriting their vulnerability to inflation and decline.

“BTC is different because of its account-backed supply – making it a higher, more powerful store of value than static coins, gold, and other assets. BTC resists censorship and centralized control, is borderless, and provides a hedge against financial instability and eroding purchasing power.”

Monty Munford

Monty Munford writes regularly for the BBC, The Economist and CT AM and was a technology columnist for Forbes and the Telegraph. He also runs a growth and visibility consultancy and has appeared at over 200 events and conferences, interviewing the likes of Tim Draper, the late John McPhee, Sir Tim Berner-Lee, Steve Wozniak, Kim Kardashian, Guns N' Roses and many others. .

Follow the author @montymunford