Bitcoin’s use as payment is falling through the floor

People using Bitcoin as a payment method continues to trend sharply downwards, according to new research published by Chainalysis.

If you’ve heard the name Chainalysis before, it’s probably in relation to the 2014 Mt.Gox exchange hack: it was the official investigator hired to track down the hundreds of thousands of Bitcoins stolen by Russian hackers. Now, though, the firm has been using its skill-set to tell us about some different bad news.

Specifically, Chainalysis has undertaken research in conjunction with Bloomberg into the the use of Bitcoin as payment – rather than as another speculative asset to trade – and have discovered that it is falling, fast.

While popular crypto payment processing services like Paybear do all the hard work for retailers, and some – like Canada’s Coinkite even offer point of sale devices to use at the tills – the research suggests that the total revenue from 17 of the largest firms in this field fell from $440 million in September 2017, to $60 million in May 2018.

By June, those numbers had rebounded to just shy of $70 million, but the trend is generally downwards.

This would seem to tally with what we’re hearing from retailers. While numbers of cryptocurrency ATMs are on the rise, very few, if any, now accept Bitcoin as payment for goods on the UK high street. If anything, the numbers of crypto-friendly shops is fading away, rather than growing.

With the news, the dream of Bitcoin as a peer-to-peer payment method that could sidestep banks appears to be failing. Intense price volatility likely has something to do with it. After all, what kind of retailer would like to accept Bitcoin, have to wait 24 hours for a transaction to be confirmed, and then at the end of it pay 20% more than they took?

In July 2018 travel supermarket Expedia became the latest big firm to drop Bitcoin as a payment method, citing four years of problems, including the inability to reverse transactions causing major issues for customers.

Bloomberg quote Nicholas Weaver, a senior researcher at the International Computer Science Institute, as saying: “It’s not actually usable…the net cost of a Bitcoin transaction is far more than a credit card transaction.”

We spoke to Daniel Wolfe, CEO of algorithmic cryptocurrency trading platform Tradingene on the reasons for Bitcoin’s payment problems.

He told us that while wallets were becoming easier to use, “people are beginning to seek integrated products that allow them to use their cryptocurrency through a credit or a debit card; so even if the place they want to use their cryptocurrency hasn’t created the ability to be paid in Bitcoin or Ethereum, they can actually get paid by Visa or Mastercard through a linked account.

“The thing that drives an inflection point where more people use cryptocurrency as a payment is – simply – ease of use.”

The lack of regulatory guidance from governments and central banks is also a deciding factor. People like to use payments that are simple, easy to understand and stable. In Bitcoin’s case, it’s still viewed as the immature stepping stone that may – in future – point the way to widely-used digital currencies.