Discussion on Bitcoin Use for Transactions

Ripple CTO David Schwartz recently engaged in a discussion with Bitcoin advocate Bruce Fenton about the declining use of Bitcoin for day-to-day transactions.

Fenton, CEO of Chainstone Lab, recalled a time around ten years ago when Bitcoin (BTC) was commonly used for purchases. In 2015, over 130 restaurants in Portsmouth, NH, accepted Bitcoin, and more than 70% of ticket sales at the Satoshi Roundtable, a major crypto conference, were paid in BTC. Today, those numbers have plummeted.

Fenton sees this decline as a significant failure, arguing that money should facilitate transactions rather than simply be an investment. He asserts, “Using Bitcoin for purchases is a great way to grow the network.”

Reasons for Decreased Bitcoin Spending

Many attribute the decrease in Bitcoin transactions to high fees and slow transaction speeds. Bitcoin user Mandrik noted that people now prefer to hold Bitcoin as a long-term asset rather than spend it, fearing future regret over spending large amounts on trivial purchases.

Schwartz argued that Bitcoin was primarily used for transactions when its value was low and many early adopters acquired it inexpensively. Once early miners—who obtained Bitcoin almost for free—became scarce, the incentive to use it for payments diminished. Schwartz stated, “Once the supply of early miners who got Bitcoin nearly for free dried up, there was no longer any reason to pay with Bitcoin.”

Jack Mehof, an early Bitcoin supporter, agreed with Schwartz, saying that while he used to pay for items like beer and tacos with Bitcoin, rising costs and slow transaction times eventually rendered it impractical.

Schwartz also highlighted the existence of many other cryptocurrencies that offer lower transaction costs and faster speeds for payments. However, he noted that those cryptocurrencies also lack widespread retail acceptance so far.

> “There are a lot of cryptos with lower costs and higher speeds. You don’t see much retail payment use of those either.” — David Schwartz

Regulatory Challenges

Experts suggest that the decline of Bitcoin as a payment option is influenced by regulatory challenges rather than just technical issues. Wayne Vaughan stated that cumbersome tax laws and banking restrictions have hindered Bitcoin payments.

“The tax treatment of Bitcoin is a major barrier. Companies accepting Bitcoin faced significant accounting burdens and banks have been incredibly hostile,” said Vaughan.

Dave Weisberger pointed out that capital gains taxes increase the cost of using Bitcoin, making every purchase effectively 24% more expensive. Sam Jones suggested that creating a tax exemption for small Bitcoin transactions could promote spending.

Some critics claim that the Lightning Network has not fulfilled its promise of providing cheaper and faster transactions, while others believe Bitcoin’s primary role has evolved into a store of value, akin to gold.

Even with potential regulatory improvements, some question whether Bitcoin can compete with traditional payment methods, as financial advisor Anders suggested that fiat currency will likely remain the more convenient choice. “People aren’t going to use Bitcoin if it creates a worse payment experience,” he noted.

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