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Can Bitcoin still serve as a payment system?
Editorial Team

The Bitcoin’s envisagement of Satoshi Nakamoto of being an exclusively online payment system and the currency has lost its way. A lot has happened in the history of Bitcoin the previous years, and the core Bitcoin’s function has been diversified from this ideal.

Mane holders now see Bitcoin as a store of value, and it has become an investor’s dream as its volatility swifts radically, gaining hugely in comparison with any other trading asset.

However, its function as a payment system is still dysfunctional, and several issues stop its progress towards its fundamental route. Mainly, Bitcoin’s scalability is being hampered due to its tardiness and costliness compared to conventional payment processing platforms.

Cost of Transactions

Analysts at Bank of America Merrill Lynch participated in a Bitcoin debate regarding its role in the global financial system.

The first examined case was the Bitcoin transactions that fee miners debit for the validation of a Blockchain transaction.

This fee was $2.40 / transaction (Q1 2017), while in (Q4 2016) was just $0.024/ transaction.

Analysts at Bank of America Merrill Lynch said in relative terms:

“One of the reasons there is a fee is because the larger the transaction data size, the longer and more energy it will take miners to validate the data […] fees are not strictly enforced like transaction fees in normal banking, but if you don’t include appropriate fees, there is a serious risk that a transaction won’t be processed by a miner.”

The economics of mining are peculiar, necessary and significant part in the slowing Bitcoin adoption as a payment system.

Nowadays, each new block mined award is estimated at 12.5 Bitcoin, around $75.000.

According to the analysts, there are around 2.000 Bitcoin transactions in each block mined so based on that, a baseline price of $37.50 per transaction can be derived.

Speed of transactions

Analysts, examining the transactions speeds, found out that the wait time averages of about 10 minutes for the 300.000 transactions per day, comparing that to Visa’s payment system capacity of average 2.000 transactions per second.

“Assuming 20,000 retail transactions are processed every second, it would take about 100 minutes for one second’s worth of transactions to be processed on the Bitcoin Blockchain,” the analysts said.

This finding out suggests that Bitcoin speed upgrades should occur before the real adoption as a payment platform.

Comparing costs, analysts said standard transaction fees for transaction processors such as Visa and MasterCard range from 0.2 percent to five percent according to factors such as merchant’s size and location.

Adding $2.40 and 0.20 percent charge applicable in the incumbent industry, the minimum size of a transaction would have to be to break even for Bitcoin is $1.200.

In Conclusion

The analysts at Merrill Lynch conclusion recognizes the unique proof of concept for Blockchain. “However, so far it looks to have not made much headway in its obvious agenda, to provide a ‘purely peer-to-peer version of electronic cash.”