Technicals suggest Bitcoin is still far from ideal for daily payments

It is no secret that a vast majority of investors, both from the realm of traditional as well as crypto finance, view Bitcoin (BTC) as a long-term store of value akin to “digital gold.” And, while that may be the dominant narrative surrounding the asset, it is worth noting that in recent years the flagship crypto’s use as a medium of exchange has been on the rise.

To this point, recently, the central bank of El Salvador revealed that its citizens living abroad have sent over $50 million in remittances to their friends and family. To elaborate, Douglas Rodríguez, president of El Salvador’s Central Reserve Bank, announced that $52 million worth of BTC remittances had been processed via the country’s national digital wallet service Chivo through the first five months of the year alone, marking a 3.9%, $118 million increase in value when compared to the same period in 2021.

Bitcoin as a payment medium has been on the rise, as is made evident by the noticeable increase in the adoption of layer-2 payment protocols such as the Lightning Network. To this point, BTC transaction volumes are currently up by a whopping 400% over the last twelve months.

Therefore, it is worth delving into the question of whether Bitcoin’s utility as a daily transaction medium is actually feasible, especially from a long-term perspective, as when compared to other networks like Ethereum, Solana or Cardano, Bitcoin still lags behind in key areas including scalability and transaction throughput.

Is Bitcoin’s utility as a payment method overrated?

According to Corbin Fraser, head of financial services for Bitcoin exchange and cryptocurrency wallet developer Bitcoin.com, Bitcoin has lost its first mover advantage as peer-to-peer (P2P) cash. This is due to the fact that, since 2016, the Bitcoin community has done everything possible to explain to its users that they should absolutely not use Bitcoin for payments or remittance-related purposes. He added:

“Use cases of remittance and P2P cash payments have moved to other blockchains with higher throughput, lower fees. Bitcoin will be hard pressed to re-introduce the concept of daily payments to its users and other communities focused on these use cases which have found a home under various other banners.”

Fraser stated that when one takes into consideration the difficulty side of things, such as the hassles involved with ordinary crypto users deploying layer-2 solutions like the Lightning Network to process payments, the situation becomes all the more complex. “Competition in low fee, high throughput chains has increased considerably in the past two years. Bitcoin is on its heels when it comes to shifting focus back to using it for daily payments,” he added.

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On a technical note, he highlighted that Bitcoin’s limited throughput of five transactions per second means that as people start to flock to the blockchain for daily transactions, its memory pool will fill up, causing the fee market to expand, pricing out more and more users and creating a negative experience for users intending on using it for daily payments. He said:

“Even in the event of a mass exodus from layer-1 BTC to layer-2 BTC protocols, the system will struggle both due to deposits and withdrawals to and from the Lightning Network. That said, Bitcoin’s core devs could make some changes to further enhance utility for payments. If the BTC community can rally behind the payments use case, it is possible consensus could be reached.”

A somewhat similar opinion is shared by Toya Zhang, chief marketing officer for cryptocurrency exchange Bit.com, who told Cointelegraph that even though Bitcoin was initially designed as a payment currency, the development of different protocols and stablecoins has made it highly unlikely that it will ever be used as a payment token anytime soon, even with the implementation of layer-2 solutions. She further explained:

“In the long…