Bitcoin is not a payment network

Bitcoin is often presented as a payment network1.

I think this happens because it is more convenient to ignore the more politically controversial aspects of Bitcoin.

After all, everyone agrees that credit cards suck. You’re basically giving your private key to entities so they can charge you what they want; fraud is very high and the fixes are inconvenient two-factor authentication systems. When you’re used to Bitcoin, where you only sign transactions, this is laughable. Merchants also enjoy the certainty of no chargebacks and small entities do not get fucked by bank fees.

So Bitcoin does all of this better than credit cards, however, it is mostly because the state-backed banking monopoly and the mountain of “regulations”.

There’s no reason we could not have payment systems with instant payments, policies against chargebacks, secure transaction signing, etc.

Ripple is actually quite close to that, if you ignore their own altcoin bullshit; but I doubt Ripple would survive regulation if it ever becomes too popular.

Bitcoin detractors that interact with the poorly informed “bitcoin community” will retort that Bitcoin has many issues as a payment network, and they will be right.
If you only want buy stuff, the price fluctuation risk is incredibly annoying. Of course, that’s what Coinbase wants you to forget, because they always try to fuck you on that aspect. They’ve even automated the fucking2.
Critics will also say that it does not scale. The blockchain as a payment network truly cannot handle the transaction volume of, say, Mastercard.

Unless you are bitcoin-rich, or have a bitcoin income, there is very little incentive to use Bitcoin to buy things online. So while merchants accepting Bitcoin take very little risk as payment processors give them the exact fiat amount they want, I do not think they get much volume from bitcoiners. MP goes as far as to say as payment processors are “not in Bitcoin”; I disagree, in the sense that payment processors are exchanges3. While those payment processors have no business long-term, they are very useful in the short term.

Decentralization is a compromise. Bitcoin as an ubiquitous payment network will not happen on the blockchain, and it will likely be through centralized services. The future of Bitcoin payments is to use the blockchain as a clearing house tool and for long-term savings, and there’s nothing wrong about that.

Because what Bitcoin really is is digital cash and digital gold.

Bitcoins are an extremely secure, unseizable asset that you can actually own; unlike how most fiat currency is used, bitcoins in your wallet are a not debt to you and are not exposed to fractional reserves.
It is much more convenient to hold and secure than fiat cash, and fiat cash only works in physical transactions (and is sometimes not even allowed).

Moreover, its limited supply is anything but a random choice; it is a clear message against governmental central banking policies. And it’s not so that it is deflationary, it is more that the monetary policy is known in advance and impossible to change. Bitcoin with an constant but reasonable inflation4 would not be so different.

And this is what we have really been longing for.

  1. Wikipedia says “payment system”. []
  2. Not that all automated fucking is bad. []
  3. And usually do not require the AML KYC crap. []
  4. For example, 1 BTC block reward, forever. []

2 Responses to “Bitcoin is not a payment network”

  • Corollary, the amount spent in transaction fees will converge to 0, and with it the amount of hashing power securing the network. The proof of work system is unsustainable without constant inflation to the miners.
  • I expect miners to eventually act against zero fee transactions; of course if they set the fee too high they might get too few transactions. It’s something to balance.

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