Bitcoin Payment Channel

Many now view and use Bitcoin as a store of value, and it has become an investor's dream since its volatility has caused its price to rise sharply.

But as a payment system, Bitcoin is still greatly flawed, and there are core issues which are stopping its growth in this direction. Bitcoin's scalability is being hampered because it is too slow and expensive relative to more conventional payment processing systems.

Cost Of Trades

Analysts at Bank of America Merrill Lynch have weighed into the discussion around Bitcoin's part in the world financial system.

Their first port of call was cost of Bitcoin transactions, that's the charge miners set to validate a Blockchain transaction.

At the first quarter of 2017, the cost was $2.40 per transaction — up considerably from $0.024 pennies in Q4 2016.

The economics of mining are all complex and necessary, but they are playing their role in slowing the adoption of Bitcoin as a payment system.

Speed Of transactions

Looking deeper into the information, the analysts also examined transaction speeds. They developed a wait period average of about 10 minutes to the 300,000 transactions per day.

“Assuming 20,000 retail trades are processed each second, it would take about 100 minutes for one minute's worth of transactions to be processed to the Bitcoin Blockchain,” the analysts said.

That suggests significant speed updates will have to be developed before Bitcoin could be meaningfully embraced as a payment system.

Assessing costs, analysts stated conventional transaction fees for transaction processors like Visa and Mastercard range from 0.2 percent to 5 percent based on factors like the retailer's size and location.

So taking into account Bitcoin's $2.40 transaction fee plus the 0.20 percent charge applicable in the incumbent industry, the analysts said the minimal dimensions of a transaction would have to be $1,200 for Bitcoin to break even.

Bitcoin Payment Channel Conclusion

The analysts at Merrill Lynch therefore reasoned that Bitcoin is a great proof of concept to its underlying technology, which is the Blockchain.

However, so far it looks to haven't made much headway in its obvious agenda, to provide a ‘only peer-to-peer version of electronic money.

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