Not Just Digital Gold: Bitcoin Startups Are Working on Payments Again

By Kyle Torpey


While the “digital gold” meme around Bitcoin has always existed, the early startups that were built around the technology were much more focused on payments. Bitcoin proponents made promises of instant, free transactions made to the various merchants who decided to take a chance on the peer-to-peer digital cash system, but most of that fizzled out after it became clear that Bitcoin was not ready to act as the digital payments infrastructure for the entire world — at least not while remaining sufficiently decentralized.

The store of value and speculation use cases have been the main areas of focus for Bitcoin users over the past few years (just look at Bitcoin’s fee market for evidence of that), but there has recently been a resurgence in the number of businesses that want to return to the adoption of Bitcoin as a system for online payments.

This renewed interest in Bitcoin payments is almost exclusively due to the development of the Lightning Network, which is a second-layer, payments-focused protocol for Bitcoin. The Lightning Network enables instant and practically free payments without sacrificing too much in terms of decentralization and censorship resistance.

While Stephen Pair, who is the CEO of the oldest and well-known Bitcoin payments startup BitPay, revealed that his company is taking a “wait and see” approach when it comes to the Lightning Network at the Bitcoin 2019 conference, a number of other startups aren’t waiting around.

But is Bitcoin really ready to become a more widely used medium of exchange? We reached out to executives at four Bitcoin startups (Bitrefill, Fold, Lolli, and OpenNode) working in this area to get a clearer picture of what’s going on with the Bitcoin payments Renaissance.

Is Now the Time for Bitcoin Payments Adoption?

It’s no secret that on-chain Bitcoin transactions simply do not work well for normal, everyday payments. And this sentiment was shared by the Bitcoin startups that responded to our questions.

“To be an actual usable payment method in a real-life situation, transaction speeds have to increase or no one will want to use Bitcoin because it will be inefficient at [point of sale],” said Lolli CEO Alex Adelman. “For instance, if you’re ordering a latte at Starbucks in Manhattan during rush hour, both merchant and customer can’t have delays in the system. We all know that Bitcoin’s processing time is not instant. So we need Lightning or a second layer that can reduce fees and processing times for instances like that.”

According to OpenNode CEO Afnan Rahman, the Lightning Network effectively delivers on the promises that were made by earlier Bitcoin startups in terms of fast, cheap online payments.

“We believe that the Lightning Network not only fulfills those promises, but also negates the use case for 90% of the altcoins you see on the market today,” said Rahman.

For Bitrefill COO John Carvalho, it is the unique features and improved payment experience of Bitcoin’s Lightning Network that drives its adoption.

“Merchants, for example, can issue exact invoices and receive instant payment in BTC using Lightning,” explained Carvalho. “This is a much better experience than standard BTC when shopping or using an ATM.”

Earlier this year, Carvalho revealed that Lightning Network payments had already become more popular than any of the altcoin payment option at Bitrefill, which specializes in selling various forms of gift cards and mobile refills in exchange for Bitcoin and altcoins.

Bitrefill has been around for a number of years, but the company recently gained more notoriety among Bitcoin enthusiasts due to their development of Lightning Network-related products and services.

Fold has also already seen some success with their adoption of the Lightning Network by way of their Lightning Pizza website, which allows users to purchase Domino’s pizza with a 5% discount via the Lightning Network.

“We know people want to make Lightning payments because they are doing it everyday on Fold and Lightning Pizza,” said Fold CEO Will Reeves. “Once onboarded into Lightning, we find that people often spend more and more often than they would with a credit card. We should not underestimate the power of frictionless one-tap payments that preserve privacy and put the consumer in control of their spending data.”

Creating Incentives for Bitcoin Payments Adoption

As Reeves indicated, the combination of the user-friendly nature of Lightning Network payments with the self-sovereignty associated with Bitcoin has already been somewhat successful for Fold and other businesses. However, both Fold and Lolli are attempting to bring additional incentives into the mix via rewards programs.

“Fold is working to make Lightning more financially incentivized than swiping a credit card, while offering unparalleled privacy,” said Reeves. “No more handing over payment details that can be compromised and transaction histories that can be sold.”

Longtime Bitcoin enthusiasts will know that Fold is not a new company. The business was founded back in 2012, and users were originally able to get 20% off of their Starbucks orders by paying with Bitcoin through the Fold app.

On Wednesday, Fold launched a rewards program that will bring back similar incentives for using Bitcoin at well-known retailers. This is only a few weeks after the startup officially launched their Lightning Network integration.

On the other hand, Lolli is playing the long game, and their master plan for merchant adoption (as described by Lolli CEO Alex Adelman at the Bitcoin 2019 conference) starts with giving consumers Bitcoin rewards for shopping at various well-known retail outlets via traditional payment options such as credit cards.

“I believe adoption of Bitcoin and Lightning will require merchants incentivizing consumers to use Bitcoin in place of other currencies,” Adelman told Longhash. “Merchants are currently incentivized to reduce chargebacks and credit card fees. I personally believe that they should pass that back to the consumer to increase mainstream adoption of bitcoin.”

Is Lightning Ready for Primetime?

Of course, the question remains as to whether the Lightning Network is ready for primetime. While OpenNode believes the Lightning Network is on the cusp of being ready for mainstream usage, plenty of critics still exist in terms of whether it will ever be possible to use the Lightning Network is a user-friendly manner.

The Lightning Network is a tremendous achievement from a technical perspective, but it’s also rather complex. For now, the basic question is whether all of that additional complexity can be hidden from the user in the various apps that will use this new payments technology.

“I think the concern for Lightning's complexity is overblown,” said Carvahlo. “The people that need Bitcoin or seek its qualities are mostly capable of learning to use new software. The Lightning protocol and supporting applications will become much more usable, but it really isn't much more complicated than using Bitcoin.”

According to Reeves, it will be the responsibility of those building in the space to handle the most severe usability issues that aren’t necessarily inherent to the Lightning protocol itself.

“It’s no small task to onboard someone [to the Lightning Network], leaving plenty to improve in the onboarding funnel,” said Reeves. “Most of the most serious usability issues, however, will need to be solved by those building in the space and are not inherent to the protocol itself — I’ve got no doubt that we’re up to the challenge.”

Having said that, it feels as if a new tool for these apps to simplify the Lightning Network experience is coming out every month — if not every week. Users may never need to learn about features like watchtowers, autopilot, submarine swaps, and atomic multipath payments, but these are invaluable building blocks for the app developers who want to solve Bitcoin’s usability issues in the area of payments.

It should also be noted that the Lightning Network is not the only possible layer-two solution for payments. Other options, such as statechains or a payments-focused drivechain, could also eventually supplement the Lightning Network.

“There can be huge benefits to a sidechain or any multi-layered solution, as any unnecessary bloat of the Bitcoin blockchain can be offset,” said Rahman. “And we have seen these protocols be robust enough to work with each other as well, so there is no need to rely on any single solution.”

Whether it’s through the Lightning Network, some other layer-two solution, or a combination of different payments innovations, Carvalho is of the opinion that merchant adoption is something that should occur naturally.

“Direct merchant adoption is probably not something that should be forced; nor is it healthy to forcefully attempt to ‘build’ more hodlers,” said Carvalho. “At Bitrefill, we get around the merchant adoption concept by adding gift card products to our catalog. This removes any urgency for merchant adoption of Bitcoin directly. What's important is that the Bitcoin ecosystem is providing the utility needed by the current market. The crypto economy is growing, but the technology is still rapidly advancing compared to the market's size. The current pace of adoption seems healthy.”

While the masses may not be ready to adopt Bitcoin for everyday payments today, developers are putting the work into solutions like the Lightning Network to improve the user experience for those who are ready to use Bitcoin as a medium of exchange right now. Additionally, these protocols will allow the Bitcoin network to better handle a gradual increase in users over time.

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