Why Bitcoin Has Real Potential To Upend The Legacy Payments System

Why Bitcoin Has Real Potential To Upend The Legacy Payments System

Bitcoin is most often discussed as a volatile digital currency. But where Bitcoin’s real value lies is as a payments technology that has the potential to revolutionize the legacy payments industry.

Bitcoin offers merchant a low-cost payments system, and consumers a virtually frictionless payments experience. Value can easily be transferred around the world without transmitting sensitive information that could be used for fraud, and without forcing merchants to pay extortionate transaction fees.

But, while the emergence of Bitcoin brings with it numerous advantages, it also faces incredible hurdles.

 

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Unlike government-backed currencies, Bitcoin’s elegant design places a strict limit on how many units can be created — 21 million. But each coin can be divided into 100 million pieces, which will allow it to scale as a payments technology.

Bitcoin’s daily average transaction volume stands at just $89 million compared to $16.5 billion for Visa and $9.8 billion for MasterCard.

In a nutshell, Bitcoin allows for the simple and secure transfer of value online, without intermediaries. There are many players in the Bitcoin ecosystem that help to make this happen, including Bitcoin exchanges, Bitcoin wallets, and miners.

Third-party bitcoin payments processors already are stepping in to address flaws such as price volatility and the length of time that it takes the Bitcoin network to clear transactions, allowing merchants to instantly process bitcoin transactions and avoid exchange risk.

Bitcoin faces other significant threats, though, including fraud and regulation. And right now, too much power is concentrated among a small group of miners, which opens Bitcoin up to further vulnerabilities.

Despite the barriers, we believe the efficiency and low cost of Bitcoin in comparison to legacy payments tools — including credit cards, money transfer services, and letters of credit — will ultimately prove too tempting for merchants, individuals, and business-to-business applications to resist.

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