Using bitcoin for payments may not get as much chatter as it did at the beginning of the year, but under the hood, a lot’s been happening in 2022.
Payments tech firms like Stripe, Block and PayPal have been expanding their crypto offerings and capabilities. Strike announced a partnership that will bring its crypto payments to NCR’s point-of-sale terminals, as well as partnerships with Shopify and prepaid payments provider Blackhawk Network.
Beyond that, the Lightning Network’s Layer 2 service finally started taking the work of transactions off the Bitcoin blockchain, making them a lot faster and cheaper, and taking fair bit of power out of arguments that it cannot handle payments. And the use of crypto debit cards is growing, too.
At the same time, bitcoin payments have come under growing pressure from stablecoins — which now account for about a quarter of payments technology provider BitPay, its CEO told PYMNTS’ Karen Webster in August. And that’s on top of a deepening crypto winter in value that has made Bitcoin holders less inclined to spend them.
But the biggest hurdle bitcoin will face as a payments currency may well be erected this week, by something mostly unrelated: The No. 2 blockchain, Ethereum, is on the verge of moving to a more environmentally friendly Ethereum 2.0 blockchain that will slash more than 99% of its country-sized energy requirements. It will remove a Chile-sized amount of power consumption.
And that’s going to double and redouble the strength of the case of bitcoin payments’ most vigorous opponents: The environmentalists and ESG investors who say that the staggering amount of electricity bitcoin mining requires makes it a threat that cannot be ignored.
There are more than a few arguments pro and con about the security, centralization and fairness of bitcoin’s power-hungry proof-of-work (PoW) consensus mechanism — mining — versus Ethereum 2.0 proof-of-stake (PoS) version, called staking.
Bitcoin uses nearly as much power as Pakistan. The European Commission had to beat back a powerful movement to add a ban on both bitcoin mining and bitcoin itself to it Markets in Crypto-Assets (MiCA) regulatory regime for digital assets.
Most legislative proposals in the U.S. include at least a study of the pollution it causes, and the first report from a government agency due under President Joe Biden’s Executive Order on crypto said if the impact can’t be mitigated, a mining ban should be considered.
While “direct comparisons are complicated,” the report by the White House Office of Science and Technology Policy (OSTP) said, “Visa, MasterCard, and American Express combined… consumed less than 1% of the electricity that Bitcoin and Ethereum used [in 2020], despite processing many times the number of on-chain transactions and supporting their broader corporate operations.”
It then added, “responsible development of digital assets includes ensuring operations with dramatically lower energy intensity, as digital assets are adopted.”
Which is a pretty clear question, if not demand: If Ethereum can do it, why can’t Bitcoin?
The problem is that it’s been a seven-year process for Ethereum, and there’s a lot more centralization of thought and influence in the Ethereum Foundation, starting with the person who was the creator and main co-founder, Vitalik Buterin.
Bitcoin is not only missing Satoshi Nakamoto, its adherents don’t even know who he or she is or was. And without Ethereum’s need to appeal to corporate users and developers of a smart contract platform, Bitcoin doesn’t have the impetus or consensus to take on such an enormous task.
Adoption is happening
For all that, adoption is happening. According to PYMNTS’ 2022 U.S. Crypto Consumer study, more Americans have a negative view of cryptocurrencies as a payments method that a positive one — 28% to 36%.
There are two “buts” with that data. First is that 28% is a big, big number.
Second, however, is that if you pull out Baby Boomers and Seniors, those numbers change dramatically. Generation Z has 42% positive and 22% negative, Millennials are 44% to 18% on the positive side, Bridge Millennials are 39% to 20% favorable, and Gen X is roughly tied at 30% to 31%.
Has that changed over the course of the year? Yes, according to BitPay CEO Stephen Pair. Bitcoin was down to 40% to 50% of its transaction volumes as committed bitcoin owners pull back from using the cryptocurrency they believe will shoot back up in price sooner or later.
But they’re still there, they’re still spending, and bitcoin remains far and away the biggest and best-known cryptocurrency. Whether it can remain that way as it belches out pollution is a question that will be answered.
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