It is only a matter of time before Tesla shuts down Bitcoin payments. The US dollar stablecoin is still the C position in payment

Wu said the author   |   Uncle Tan

Editor of this issue   |   Colin Wu

Tesla has attracted a lot of attention by accepting Bitcoin payments, but from historical experience, this is probably still a marketing move by the Silicon Valley Iron Man. It is very likely to be cancelled in the future.

Since the birth of Bitcoin, it has continued to attract the attention of the world. According to the Bitcoin white paper, it is a "peer-to-peer electronic cash" system. Therefore, for many years, people have been trying to use Bitcoin for online payments.

The most famous of these was on May 22, 2010, when a programmer named Laszlo Hanyecz bought two pizzas on the bitcointalk forum with 10,000 bitcoins, which became one of the legendary events in the history of bitcoin development. May 22 was also named "Bitcoin Pizza Day" by bitcoin enthusiasts.

Laszlo's transactions were still point-to-point transactions between merchants. Since then, some companies have developed special tools or payment platforms to make it easier for merchants to accept Bitcoin payments and for users to use Bitcoin for consumption. Some large companies have also gradually accepted Bitcoin as a payment option. However, after so many years of development, the development of using Bitcoin to pay online is not optimistic.

1    Some companies that accepted Bitcoin as payment have stopped accepting Bitcoin

As a novel payment method, Bitcoin was naturally favored by technology companies first. Some companies related to the technology field tried to accept Bitcoin payments. However, many companies stopped accepting Bitcoin payments after a period of time. This list includes computer brand Dell, online forum Reddit, game platform Steam, air ticket and hotel booking platform Expedia, etc.

If it is understandable that these companies no longer accept Bitcoin payments, it seems a bit unreasonable that the "North American Bitcoin Conference" held in Miami in January 2018 also did not accept Bitcoin as a payment option. The reason for not accepting Bitcoin was that it coincided with the Bitcoin bull market in 2017-2018. The Bitcoin network was congested due to the sharp increase in transaction volume. Using Bitcoin to pay not only had high mining fees, but also was likely to fail to be confirmed in time. Even for Bitcoin-themed conferences, Bitcoin had to be abandoned as a payment option.

  2      The experience of using Bitcoin for payment is not optimistic

The experience of using Bitcoin to pay online is not good. According to the announcement that the gaming platform Steam stopped accepting Bitcoin payments, due to the high volatility of Bitcoin prices, users need to complete Bitcoin payments within a certain period of time, and due to the congestion of the Bitcoin network, the Bitcoin paid by users often cannot be confirmed within a certain period of time.

This creates a problem. It is very likely that when the transaction is confirmed, the user will need to pay an additional amount of Bitcoin, and this additional Bitcoin will once again face the problem of new confirmation and transaction fees, making it very inconvenient to use it for transactions.

On March 14, Stripe, the US online payment giant, completed a $600 million financing, bringing its valuation to $95 billion. The giant was one of the platforms that supported Bitcoin payments in 2014, but stopped supporting Bitcoin in 2018 due to congestion (1).

Currently, the main platforms that provide Bitcoin payment are Bitpay and Coinbase Commerce provided by Coinbase, which occupy most of the market share of Bitcoin payment. However, for users, the experience of using Bitcoin payment is not good, because compared with using legal currency payment, users have to pay an additional mining fee. Therefore, for small orders, it is not cost-effective to pay with Bitcoin, and there is often a timeout confirmation problem.

In 2018, Bitpay began to add support for BCH in addition to Bitcoin. Since then, both Bitpay and Coinbase Commerce have added support for more digital currencies. For example, in addition to BTC and BCH, Bitpay has also added support for ETH and XRP, while Coinbase Commerce has added support for stablecoins USDC and DAI.

Even though Bitpay and Coinbase offer options with lower mining fees such as BCH, Fastmail, an email company that uses Bitpay as a payment solution, announced in 2019 that it would stop accepting digital currencies. The reason given was that "the small number of users makes the technical maintenance costs too high." This shows that using digital currency for online payments is still only an option for a few people.

  3      Accepting cryptocurrency payments also has compliance costs

Both Bitpay and Coinbase Commerce are payment processing platforms, which are like credit card companies. After accepting cryptocurrencies, they deduct fees and settle with merchants in fiat currency (merchants can also choose to keep Bitcoin). So in fact, when merchants use them, there is not much difference from using platforms like Stripe, because they receive fiat currency.

For merchants who do not want to rely on Bitpay, there are currently solutions like BTCpay, which allow merchants to directly accept Bitcoin payments from users. However, if this is done, there will be compliance issues, because due to the anonymous nature of cryptocurrencies, many coins come from gray or black areas. If you want to avoid receiving such coins, merchants need to purchase the services of blockchain analysis companies (such as Chainalysis or CiperTrace) to ensure the safety of the funds received. However, this will further increase the cost of merchants. Instead of doing this, it is better to leave the compliance issue to professional platforms such as Bitpay.

But even a professional company like Bitpay faces the problem of unclear sources of funds. According to an announcement released by the U.S. Treasury Department on February 18 this year (2), between 2013 and 2018, Bitpay helped people from countries and regions on the U.S. sanctions list (including Crimea, Cuba, North Korea, Sudan, Iran and Syria) to trade with Americans, violating relevant sanctions laws. The number of transactions reached more than 2,000, with a total amount of approximately US$129,000. For this reason, Bitpay paid the U.S. Treasury Department US$507,375 as a settlement.

That is to say, if a person in Iran purchases a Steam game through Bitpay, Bitpay will need to pay a fine, and the total amount of the fine is far greater than the transaction amount.

In order to prevent money laundering, Bitpay has required all users with order amounts greater than US$3,000 to undergo KYC since August 2019. This has obviously further damaged the user experience of using cryptocurrency payments. After all, using fiat currency to pay online generally does not require going through KYC processes such as sending ID cards.

  4      Is Tesla’s Acceptance of Bitcoin Payments Sustainable?

Although it is not practical to accept Bitcoin for online payments, as a new thing in recent years, Bitcoin has its own news effect, so many companies are willing to use "accepting Bitcoin payments" as an effective public means. Whether it is Dell or Steam, they have made headlines in various media after announcing the acceptance of Bitcoin payments. Although the business generated by Bitcoin may not be much, it can obtain a lot of free advertising opportunities. Now, the latest company to do so is Tesla.

After Tesla announced that it would accept Bitcoin payments, it not only occupied the headlines of major news, but also caused the price of Bitcoin to rise by $3,000 in an instant. According to Musk, Tesla will run its own Bitcoin node, use open source software, and will not convert the received Bitcoin into legal currency.

At the same time, the refund clause (3) regarding the use of Bitcoin is also very interesting. Tesla stated that when a user pays with Bitcoin, it is equivalent to paying an equivalent amount of Bitcoin based on the dollar price of Tesla at the time. When the user requests a refund, Tesla can choose to return the user Bitcoin or an equivalent amount of US dollars. The user has no right to choose. For example, if a user spends one Bitcoin to buy a Tesla when the Bitcoin price is $50,000, and before picking up the car, the Bitcoin price has risen to $100,000, and the user requests a refund, Tesla can choose to refund the user $50,000, which is only equivalent to 0.5 Bitcoin. Conversely, if the Bitcoin price falls to $10,000 when the user requests a refund, Tesla can choose to refund the user one Bitcoin instead of the $50,000 paid when the car was purchased.

This refund policy is a bit hard to understand, because according to Musk, Tesla did not convert the Bitcoin used by users to buy cars into legal currency. In theory, it should be possible to refund users an equal amount of Bitcoin. Such a policy may not encourage users to pay with Bitcoin. As for the arbitrage problem, other restrictive clauses can be used to solve it.

In any case, Tesla has already attracted enough attention by supporting Bitcoin payments. How many users will use Bitcoin to pay, and whether Tesla will stop accepting Bitcoin in the future after enjoying free public relations like other companies, will probably need to be known from Tesla's future announcements.

However, with the rise of stablecoins, the application of compliant stablecoins such as USDC, PAX, and BUSD in compliant fields, and the application of USDT, DAI, etc. in non-compliant fields, have begun to gain a foothold in crypto payments. USDT's trading volume has been at the top of the cryptocurrency trading volume list for a long time. Cryptocurrency payments are not necessarily a false proposition, but they will definitely not happen to Bitcoin.

[1]:https://stripe.com/blog/ending-bitcoin-support

[2]:https://home.treasury.gov/system/files/126/20210218_bp.pdf

[3]:https://www.tesla.com/assets/pdf/btc_terms_and_conditions_en_US.pdf

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