The above image is a snapshot of an email I just received from BitPay, one of the better (in my opinion) merchant tools providers in the bitcoin space (used by NewEgg and other major retailers).
Bitcoin’s success is bitcoin’s doom.
As its popularity mushrooms, so does the transaction processing requirements to facilitate the network. Because of the “proof of work” (or POW) requirements necessary for a decentralized bitcoin network to confirm transactions, it takes brute-force computer effort by many computers (called “miners” in bitcoin-speak) to make that happen. Worse still, as more bitcoin miners come on-line to deal with the demand, the algorithms the computers use to confirm these transactions actually become more difficult, requiring more raw computer power to process the transactions.
Added to this, are limitations in the “blockchain” that defines bitcoin. It’s size is fixed, creating bottlenecks in transaction processing. This means two important things: First, that miners will favor those transactions where they make the most money in processing the transaction (i.e. it’s not first come, first serve; it’s first serve to the highest bidder). Second, that transactions can wait a long time (or even forever), if the transaction fees paid weren’t high enough at the time of the transaction.
What we have is a downward death spiral.
Hence today’s email from BitPay. Here’s what they said:
The Bitcoin network has been seeing record transaction volume in the last few weeks. This growth has also led to record network congestion and record-high bitcoin miner fees.
Miner fees are now more than $30 per transaction on average. To protect purchasers and to continue to offer service for Bitcoin payments, we are now requiring a new invoice minimum payment amount of $100 on all BitPay invoices.
Why BitPay is raising the invoice minimum to $100
Bitcoin miner fees are the costs to purchasers for sending Bitcoin transactions. BitPay also pays these costs as an operational cost for sweeping and processing payments received to BitPay invoices.
With current bitcoin network conditions, transactions sent without large miner fees are at high risk of significant payment delays or payment failures. This has meant that bitcoin payments under $100 are quickly becoming impractical for users to send and for BitPay to process.
. . .
You read that right. It’s upwards of $30 (and more) to conduct a transaction on the bitcoin network. Imagine if you had to spend $30 dollars to buy something with your credit card? Just how long would you continue to use such a credit card?
Unfortunately, this problem is not going away, given the inherent structure and design of bitcoin.
Fortunately, there are already alternatives in cryptocurrency: They are called “altcoins,” and you’ve probably heard of “Bitcoin Gold” (BTG) or “Bitcoin Cash” (BTH) or “Zcash” (ZEC), just to name a few. These alternative cryptocurrencies have sprung-up to address some of the shortcomings with bitcoin (for example, blockchains with larger capacities), although if you think it’s difficult to accept bitcoin as a business, you haven’t seen anything. It’s next to impossible to find good merchant account tools that permit businesses to accept alternative cryptocurrency.
As a law firm, we use CryptoWoo to help us accept certain cryptocurrencies (Bitcoin, Litecoin and Dogecoin). It’s actually very good, but it’s acceptance of altcoins is somewhat limited (although it does provide a mechanism to take advantage of ShapeShift to convert cryptocurrencies — we just feel the interface is not quite ready for adoption by the masses).
In short, commerce demands fast, inexpensive transaction processing. This is polar opposite of what bitcoin appears to be capable of given current issues — during a very important time of the year for merchants. I think we’re now seeing clear proof that bitcoin is not the long-term standard for cryptocurrency. Instead, it will be an alternative (i.e. altcoin) — an alternative that does not suffer the transaction processing problems of bitcoin (speed and cost), and is supported by strong merchant processing tools for business.
Today, I cannot tell you which altcoin that will be.