While Bitcoin has proven a valuable asset for investors, there are still questions about whether the cryptocurrency will ever be useful for making purchases in the commercial marketplace.
The digital payments company Stripe recently became the latest to discontinue support for Bitcoin payments, citing long wait times and high transaction fees.
In an article posted online, Stripe claimed that transaction confirmation times – and the fees associated with shortening those times – have risen substantially.
“The thing is about Bitcoin is there’s are only so many transactions that can fit into every single block. And the demand for the network is pretty high, so therefore the fees on the transactions have also gone up. So, right now it’s probably costing about $10 to send a transaction, which if you’re buying a $20 pair of shoes online, that’s not going to make much sense anymore,” explained Kyle Kemper, the Executive Director of the Blockchain Association of Canada.
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Kemper’s statements echoed the reasons provided by Stripe for discontinuing Bitcoin support – which have also been touted by experts as a major obstacle for the platform.
The transfer of Bitcoins is done through a blockchain platform, which is like a digital ledger that chronologically records transactions. These records are called blocks, which are linked using a secure online messaging system called cryptography. Each transaction must be recorded by a physical person, called a miner.
Andreas Park, professor of finance at the University of Toronto, previously told Global News that transaction fees are like a “tip on your transaction,” as the fees are picked up by the miners who process the payments. The blocks with the largest fees will often be prioritized over those with nominal fees.
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“The fee is basically the incentive for the network to keep on solving, keeping it all secure. And because you can only fit so many transactions into a block, they generally take the highest priority ones – the ones with the biggest fees,” Kemper adds.
He goes on to say that if the transaction fees on a block are small enough, they may never get picked up and the transaction will remain incomplete. Essentially, the system gets bogged down because more and more people want to use the network.
In December, 2017, Valve, owner of the popular online gaming company Steam, announced it would no longer support Bitcoin transactions due to “high fees” and “volatility.” The blog post also stated that because transactions on Steam are only valid for a certain period of time, the wait time associated with using Bitcoin’s platform made checking out untenable for users.
There isn’t a clear solution to the problem at this point, though Kemper says Bitcoin is working on it.
“There are scaling solutions that will reduce the fee pressure on the sends, but it takes time.”
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While doesn’t look like you’ll be transferring bitcoins to buy your morning coffee anytime soon, Kemper predicts that this day will come as more and more retailers get on board.
“This is also very early days and ultimately, the world is going to have so many tokens that represent value that I’ll be able to pay in whatever the hell I want and the merchant will be able to take payment in whatever the heck they want.”
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