Bitcoin has developed as a store of value over the past 10 years and undergone updates to enhance its transaction processing capabilities. Many companies now accept Bitcoin (BTC) as a form of payment, both offline and online.
BTC can be useful for larger transactions despite having higher costs than many other cryptocurrencies, especially in light of its remarkable security. For a significant portion of its history, the Bitcoin community had high hopes for the cryptocurrency being a competitive alternative to the numerous centralized payment methods already in use. BTC is currently utilized mostly as a long-term investment, a commodity similar to gold or stocks.
Traffic jam on bitcoin network.
The biggest issue is the network’s capacity for transactions: Bitcoin can only perform a maximum of seven transactions per second. During 2019, Visa processed more than 185 billion transactions.
Credit card transactions are not immediately cleared, it should be noted. While Bitcoin is accused for delaying transactions for hours during periods of congestion, those transactions are sometimes held for days. People regularly confuse completed and pending transactions in Bitcoin, much like they do with credit cards.
The network swells as more and more users begin to use Bitcoin and send transactions. Waiting times and, most significantly, transaction costs also increase and decrease with the amount of transactions during periods of network congestion.
A prime example of this came in 2017, during which time the price of the token rose, when BTC transaction fees increased as a result of increased usage and trade. That led some individuals to doubt the viability of Bitcoin, and a number of significant businesses stopped taking it as a form of payment.
Solution: The Lightning Network
The Lightning Network, a scaling solution for Bitcoin that employs state channels to complete transactions almost instantly and with low fees, aims to change that. The blockchain of Bitcoin is updated by this network after transactions are finished.
The Lightning Network’s adoption is constrained by a lack of user-friendliness. Before making a transaction, users presently need to create and fund their Lightning channels. Additionally, they must maintain the channel open until the transaction is finished.
Taproot, a Bitcoin update that enhances anonymity by blending Lightning Network transactions with regular BTC transactions, will benefit the Lightning Network. Additionally, there will be wallets that make it simpler for users to make Lightning-powered purchases with BTC, which is an encouraging development for the future of Bitcoin.
The main issue that Lightning addresses is the viability of BTC for small transactions like a cup of coffee. If these small, frequent transactions are not handled by Lightning, hefty Bitcoin fees may cause prices to increase.
Transaction times in physical stores are the second most important concern. For instance, it would be incredibly frustrating to be in line behind a Bitcoin user at the register and have to wait more than ten minutes for a transaction to complete.
If Lightning is made more user-friendly, both of the aforementioned problems might be resolved. When completely deployed, Bitcoin’s proponents believe that it might genuinely compete with Visa.
The lack of lines, though, makes using Bitcoin for online transactions fairly simple, especially if you’re using your mobile wallet to pay using a QR code. The feasibility of BTC payments may be impacted by the rise of online purchasing, especially given the declining number of physical retailers.