Bitcoin’s whitepaper, which was published in 2008 under the pseudonym Satoshi Nakamoto, laid the foundation for decentralized payments. Over time, the interest in decentralized currencies and payment systems grew and so did the value of Bitcoin.
Parallel to Bitcoin’s surge in value, alternative cryptocurrencies have emerged with a greatly improved scalability. New services, such as crypto debit cards, allow the seamless integration of fiat payments into the cryptoeconomy. Let us review the steps cryptocurrencies have taken to become a global payment system.
Due to the pseudo-anonymous nature of peer to peer payments, it was inevitable that one of Bitcoin’s first use cases was the facilitation of shady transactions. As such, the cryptocurrency was soon picked as prime payment option for the various licit and often illicit offerings on the dark web.
No other than John McAffee, one of Bitcoin’s most vocal supporters and serial runner for the US presidency, openly admits to have paid for drugs, porn, and hookers with cryptocurrency. For Silk Road, one of the dark web’s biggest black markets, it is estimated that the platform had a turnover of roughly 1.2 billion US-Dollars. When the platform was closed in 2013, the authorities seized roughly 3 million Dollars worth of Bitcoin.
However, Bitcoin payments aren’t private. Many blockchain services, including crypto-to-fiat exchanges must comply with KYC/AML requirements. Therefore, authorities can link cryptocurrency transactions to an identity in many cases. This qualifies cryptocurrencies as legitimate payment systems.
On the side of legal transactions, the Electronic Frontier Foundation and WikiLeaks have started accepting Bitcoin for donations as early as 2011. Also, many legally operating merchants have started accepting Bitcoin and some of its various Altcoins as payment options.
The resulting price appreciation of Bitcoin had its fair share of odd stories, from the man who combed through a landfill in a desperate attempt to find his hard disk containing 7500 Bitcoins, to the legendary pizza transaction. In the 2010 transaction, a Florida man (who else) paid 10000 Bitcoins in exchange for two Papa John’s pizzas.
This event, which went down in history as the first Bitcoin purchase, is celebrated annually on the 22nd of May. As of last Bitcoin Pizza Day, those 10000 Bitcoins are worth roughly 80 million US-Dollars.
With only 7 transactions per second, Bitcoin has a notoriously low transaction throughput. Since transactions on the Bitcoin blockchain compete for the transaction capacity using their fees, this can lead to sharp increases in fees, especially during times of high transaction demand.
While the fees for a single transaction have been relatively stable across the last three months, hovering around $0.60, there were periods of time when Bitcoin owners had to pay multiple dollars in order to make a payment. During the bursting of the 2017 bubble, fees even went as high as $54.
In order to address the problem of scalability, some miners have proposed to increase the block size from 1 MB to 8 MB. Since the majority of miners opposed this proposal, the proponents split off from the Bitcoin blockchain and created Bitcoin Cash in a hard fork.
At around the same time, scalable Altcoins have begun to emerge and improve consistently over time. With modern Proof of Stake blockchains, which can handle thousands of transactions per second, it is possible to make transactions that cost a fraction of a cent and arrive at the recipient within only five seconds. Just recently, Bitcoin SV, which was split off in another hard fork from Bitcoin Cash, has completely abandoned block sizes, allowing for a virtually unlimited transaction throughput.
Another modern development in the blockchain sector is the emergence of stablecoins. a lot of blockchain use cases require price predictability, which cannot be achieved with unbacked cryptocurrencies, due to their volatility. Especially consumers typically prefer stable prices over the exchange risk posed by cryptocurrency. Moreover, stablecoins give rise to a wide variety of applications in the Decentralized Finance (DeFi) sector.
In the meanwhile, the acceptance of cryptocurrency payments has further improved. An example for this is the Czech hackerspace Paralelní Polis, which also hosts the Institute of Cryptoanarchy. The hackerspace located in Prague takes pride in having become the world’s first Bitcoin-only coffee bar.
During the height of Bitcoin’s fee hike, the Polis has introduced Litecoin and Bitcoin Cash as alternative currencies. Visitors with no previous exposure to cryptocurrencies can obtain their coffee by buying cryptocurrency from a Bitcoin/Litecoin ATM within the hackerspace, or by purchasing a pre-loaded plastic wallet card.
In a pilot-project last year, the international NGO Oxfam has distributed a batch of tap-and-pay cards as disaster relief to communities in Vanuatu. Each card was pre-loaded with 50 units of the DAI stablecoin. Local stores received PoS systems at which card holders were able to redeem their aid.
Over the last years, research has clearly shown that financial aid is more effective than donating physical goods, as the latter tends to undermine the local economy. Oxfam states that the project was an overwhelming success, since this form of crypto aid was a lot more efficient than cash transfers, or in-kind donations. As such, they want to upscale cryptocurrency relief payments in Vanuatu.
Since the historical pizza transaction (the recipient was a British man, who ordered the pizzas with his credit card), crypto purchases rely on intermediaries, whenever a vendor does not accept direct crypto payments. Online services soon emerged that sold digital vouchers in exchange for cryptocurrency, which could then be redeemed at various online and physical marketplaces, such as Amazon.
The latest trend in the development of cryptocurrency payment systems are crypto debit cards. Here, a trusted custodian issues a debit card, which works perfectly fine at any PoS that accepts Visa cards. Customers can load their debit card with fiat or cryptocurrency. When they use their card to make a purchase from their crypto balance, the custodian automatically exchanges the purchase amount and transfers fiat currency to the recipient.
One such service provider is CoinZoom. In cooperation with their industry-leading custodial partner BitGo, CoinZoom offers a range of tiered Visa debit cards. With licenses in all 50 states, CoinZoom is fully compliant for their US customers.
Besides transferring their existing crypto funds to the CoinZoom wallets, users can also fund their wallet through various traditional payment methods with fiat currency, which can then be exchanged into over 40 cryptocurrencies. Using a mobile application, CoinZoom customers can, at any time, select the cryptocurrency wallet, from which purchase amounts are deducted.
What makes CoinZoom stand out from other crypto debit card providers is the security provided by BitGo. Since BitGo holds the vast majority of its funds in cold wallets and is insured against losses of up to $100 million, all CoinZoom deposits are perfectly safe from hackers. Due to Visa’s Zero Liability Policy, card holders are not liable for any fraudulent transactions in the case of lost or stolen cards.