Elon Musk put out a tweet in the early evening hours of May 12 that, like many others from the ever-controversial CEO, had market-moving implications: Tesla would no longer accept Bitcoin as payment for its sleek electric vehicles.
Following the tweet, Bitcoin dropped by more than 10%. The decision to stop accepting the stalwart cryptocurrency was perhaps even more surprising than Tesla’s decision to accept it: Musk has long expressed his belief in crypto (proclaiming himself the “Dogefather,” a play on the joke cryptocurrency Dogecoin), and even companies as disparate as AT&T and WeWork accept it as payment.
Musk’s decision to halt Bitcoin purchases was motivated partly by concerns about Bitcoin’s massive carbon impact. He stated that whenever the technology improved, Tesla would consider taking the coin once more (which, Musk recently hinted, will likely be sooner rather than later).
Despite concerns about energy efficiency, the jury is still out among corporations and investors as to what cryptocurrencies should be used for.
At the very least, some cryptocurrency holders appear to be interested. Over $1 billion was spent using crypto-linked Visa cards in the first half of 2021, according to a July study from credit card titan Visa. (To put that in context, Visa processed $11.6 trillion in volume in the year ending March 31, so crypto is still a minor player.) And many companies are now offering crypto-linked payment choices, though most still convert the coins to fiat cash during the transaction. In December, fintech firm Fundera estimated that over 2,300 businesses in the United States accepted Bitcoin, excluding Bitcoin ATMs.
With the rising popularity of cryptocurrency (and the corresponding increase in the number of coins in circulation), some businesses are attempting to stay ahead of the curve and perhaps grab a new crypto-centric consumer.
BitPay is one company that facilitates a lot of that acceptance. BitPay is a payments processor that allows businesses to spend and accept Bitcoin and other cryptocurrencies. It was founded in 2011. BitPay is used by a broad and diverse list of firms, including AT&T, Amazon, DoorDash, electronics shop Newegg, Twitch, Shopify, Microsoft, WeWork, the Dallas Mavericks, and even Latvia’s airBaltic, which was the first airline to accept Bitcoin. Many of these businesses do not accept cryptocurrency directly; instead, BitPay allows users to convert their cryptocurrency into fiat gift or debit cards.
Regardless of ticket size, the method is straightforward: users may use a gift card or BitPay’s prepaid Mastercard debit card to convert their crypto (such as Bitcoin) into fiat buying power on sites like Amazon or Home Depot. Customers may go to a firm like Newegg’s checkout and choose which coin they’d like to use, then receive a QR code that they can scan with their crypto wallet to complete the transaction. BitPay takes “ownership” of the coin and pays the merchant in their local fiat currency for the amount (or crypto, if they choose).
Other payment companies, such as Visa, PayPal, and Bakkt (a subsidiary of NYSE parent Intercontinental Exchange), facilitate cryptocurrency payments by acting as intermediaries, taking care of the logistics of converting a customer’s cryptocurrency into fiat currency so merchants don’t have to handle the coins directly. Visa and PayPal do not hold the cryptocurrencies themselves: Visa collaborates with crypto platforms to issue crypto-backed cards, and Anchorage, a crypto settlement partner, just announced that it will begin settling payments in USD Coin (USDC). PayPal delegated transaction management to Paxos, its crypto custody partner.
Bakkt is a cryptocurrency wallet that allows users to spend Bitcoins, hotel and airline loyalty points, and gift cards at a range of retailers. Starbucks, for example, allows consumers to replenish their Starbucks cards by converting cryptocurrency to fiat currency. Bakkt converts the customer’s Bitcoin to fiat currency and then sends the profits to Starbucks to complete the recharge.
Other crypto-native companies, such as Coinbase, are also getting in on the fun. Coinbase Commerce, the newly public crypto exchange’s tool for retailers who want to take crypto, was launched in 2018. The exchange allows retailers to have cryptocurrency delivered directly from a customer’s wallet to their own wallet.
Bitcoin is held on the financial sheets of a few companies, including Square, MicroStrategy, Tesla, and Musk’s other venture, SpaceX. Others are concentrating on DeFi (decentralized finance) applications.
When used as a currency in transactions, cryptocurrencies such as Bitcoin face their own set of issues.
Bitcoin, on the other hand, has become less enticing to use than to hold due to a number of issues. The coin’s extreme volatility (Bitcoin has been known to lose or gain double-digit percentages in value at the drop of a hat during trading, which occurs 24 hours a day, seven days a week), the occasionally high fees charged for completing transactions on the blockchain, which is the distributed ledger technology that supports cryptocurrencies, and the potential tax implications of selling Bitcoin to fund a purchase. Users face some of the same challenges with other, less frequently held cryptocurrencies.
Some businesses are striving to solve these problems. Lightning Labs offers a “layer two” solution network, which basically resolves crypto transactions separately from the blockchain, speeding up transaction speeds and cutting fees. It’s backed by investors including Twitter and Square CEO Jack Dorsey.
Those costs, which vary depending on factors like network congestion and transaction size, can be a major pain in the neck. The average Bitcoin transaction cost on July 27 was roughly $2.48, according to crypto research and statistics firm Messari. That was a significant drop from the $60 level in April, when the price of Bitcoin was roughly double what it is now. Bitcoin’s range and unpredictability may make it less appealing as a payment method.
Because crypto as a payment method is still in its early stages of acceptance, several businesses have chosen to work with payment processors to minimize some of the disadvantages.
Using stablecoins like USDC, which is backed by the US dollar and significantly less volatile than Bitcoin, could be a straightforward method for some businesses and consumers to avoid many of the issues. Stablecoins are digital currencies tied to a less volatile underlying asset, such as a fiat currency. In reality, USDC currently accounts for a growing share of BitPay’s volume.
Stablecoins are well-suited for cross-border payments between companies, according to Visa’s senior vice president Terry Angelos, and part of the appeal of stablecoins is that “they make money programmable: I can now send them 24/7 over a blockchain network; I can put them into a smart contract; I can put them into a DeFi contract; and that’s very difficult to do with traditional money.”
The bottom line for crypto HODLers with Bitcoin in their pockets is that there are an increasing number of ways to use their currencies to make purchases. The question is whether or not they will desire to do so.
Kiara Sofia Smith
My current focus is blockchain technology and cryptocurrency. One could even call me a blockchain “enthusiast.” I have worked for almost a decade on several financial projects related to the stock market news, fundamental research and technical analysis for several blogs.
We are friendly cryptocurrency community and our mission is to give the latest info access to the people.