Category: Bitcoin

Can you use Bitcoin to make small payments online? Yes, of course.

Is it convenient? It depends.

The Bitcoin Blockchain hasn’t been very fast. Transactions can take several minutes to hours. As Bitcoin adoption grew, speed and scalability issues began to show up. Its growing popularity resulted in network congestion, Bitcoin transactions slowed down and fees shot up. Bitcoin users grew frustrated as they had to pay high fees for small transactions. The scalability issue is obvious if one thinks that the Bitcoin Blockchain can process only 7 transactions per second (TPS). As comparison, Visa can process up to 22,000 TPS.

The Lightning Network (LN) came about to address Bitcoin’s bottlenecks. The Lightning Network is an extra layer on top of Bitcoin. It is designed to solve Bitcoin’s speed, scalability and cost issues. You can think of the LN as a layer-2 network that operates on top of the Bitcoin network in order to avoid overburdening the main Blockchain. The LN can process more than 1M TPS.

How It Works

Suppose you ordered drinks at a bar for yourself and your friend. Instead of paying for each drink, you keep a running total and settle-up at the end.  The Lightning Network follows the same approach. It is as simple as paying for the tab at the end of the night. Bitcoin transactions only take place when you set up or close a tab, technically called a “channel”.  The Lightning Network ensures instant payments, and you don’t have to worry about block confirmation times. It ensures complete off-chain transaction security thanks to blockchain enforced smart contracts.

Lightning Nodes

Lightning Nodes are the fundamental access-points of the Lightning Network. Lightning nodes are responsible for processing Bitcoin transactions without storing them on the main Bitcoin Blockchain (until the channel is closed). Users can contribute to the Lightning Network’s expansion by establishing their own Lightning nodes. However, the process to set up a new Node can be quite complex. Most LN users do not set up their own Nodes, they just use Lightning Wallets. Node owners lend their nodes to other network users for off-chain transactions and charge fees for routing transactions.

Lightning Wallets

Lightning Wallets are an instant solution for sending/receiving bitcoins without owning a Lightning node. There is a plethora of Lightning Wallet apps to choose from.

Depending on your needs and technical expertise, the Lightning Network offers both custodian and non-custodian wallets.

• Custodian Lightning Wallets like Wallet of Satoshiand Bitcoin Beachare custodial services that assume all the technical complexities to operate a Lightning Node. They manage payment channels and Bitcoin keys for the users. However, they have access to off-chain transactions, so users have less control of their privacy.
• Non-Custodian Lightning Wallets offer a higher degree of independence to the users. Lightning Wallets like Breezand Phoenixenable users to access their own channels with complete control over bitcoin transactions. The responsibility of securing Bitcoin keys and managing payment channels lies with the users.

How the Lightning Network Came About

Developers Thaddeus Dryja and Joseph Poon came up with the LN concept in 2015. The idea was simple: What if the maximum number of transactions takes place off-chain? What if the blockchain records the aggregate balance of all the micropayments as one? Based on these questions, they suggested the idea of payment channels.  Following this concept, they published a white paper in 2016.  The LN idea quickly attracted developer communities. Their active participation resulted in the launch of the LN in 2018. According to the River Research Report published in October 2023 routed lightning transactions have increased by 1,212% in just two years with the LN now processing in excess of 6 million monthly transactions which is about half of Bitcoin’s daily transactions. According to 1ml.com today the LN has 13k+ Nodes and 50k channels.

If you’re planning to make most, if not all, of your purchases with Bitcoin, there are a few ways to go about it. We’re going to assume you already have a Bitcoin wallet set up and have some Bitcoin to spend. Once that’s out of the way, here are some ways to pay with Bitcoin.

1. Crypto Debit Cards

A crypto debit card works just like a regular bank’s debit card, except that it allows you to make purchases with your bitcoin or other cryptocurrencies. These cards are linked to your crypto wallet, and the funds are automatically converted into fiat currency when you make a purchase.

You can use a Bitcoin debit card to make an online purchase at any merchant that accepts traditional debit card payments. Some major crypto debit cards you can use to pay with the Visa network are issued by Crypto exchanges such as Coinbase, Binance, Crypto.com.

Pros: Widely accepted and offer cash back on select purchases.

Cons: Crypto debit cards may have relatively low spending limits and charge transaction fees (from zero to 2%) and conversion fees (from 2 to 3%). Most importantly, crypto credit cards defy one of the main purposes of Bitcoin. They do not guarantee your privacy. Visa transactions are stored in databases, so there’s always the possibility of your transaction data being hacked or leaked.

2. Payment providers such as PayPal or Venmo

If you have a Personal or Premier PayPal account, you can make online purchases and check out using Bitcoin, and your crypto holdings will automatically be converted to the fiat currency the merchant takes. While Venmo doesn’t let you make purchases using cryptocurrency, you can use it to transfer Bitcoin to businesses or vendors that accept crypto payments.

Pros: Ease of use, wide acceptance and also some degree of fraud protection.

Cons: The Payment providers security policies may come at the expense of complicated procedures to unfreeze your accounts which are frequently frozen due to potential signs of fraudulent activity.  Most of the times the transactions were fully legit but you would end with your account frozen and temporarily unable to access your funds. The most important downside of using payment providers is again privacy. Also payment providers transactions are stored in databases, so there’s always the possibility of your transaction data being hacked or leaked.

3. Direct payment from the Bitcoin Wallet

You can also use your Bitcoin wallet to make purchases directly from merchants or businesses that accept Bitcoin. Simply select the cryptocurrency option at checkout and enter your wallet details to pay.

Pros: 

Bitcoin was designed for this type of use. When you pay directly, you don’t need a third-party or intermediate service like Visa, PayPal or a crypto payment provider. This guarantees your full privacy. Furthermore, direct payments typically have lower fees compared to using a payment provider, especially if you use the Lightning network (see dedicated blog article)

Cons:  

Of course, a main issue with direct Bitcoin payments is the risk of fraud. Direct Bitcoin payments are irreversible, which can be a risk, especially if you use them at non-reputable merchants. There’s also a risk of fraudulent businesses posing as legitimate ones and accepting Bitcoin payments to scam customers. As there’s no intermediary, you’re on your own if the payment goes wrong. Another obstacle is the shortage of merchants who really accepts crypto as a payment method. Most online sources listing merchants that accept Bitcoin are inaccurate or not up-to-date (see dedicated blog article). It is not always easy to find places to spend your Bitcoin (Bitaggregator.com addresses this issue)

Wrapping Up There are several ways to use Bitcoin for your online purchases. Some ways are obviously more accessible than others. But others may be more secure or more private. It’s up to you to decide which method to use. If you only plan to buy from businesses that accept Bitcoin, direct payments are the way to go. If you want to use crypto for everything from your morning coffee to your grocery shopping using PayPal or a crypto debit card might be a better option.

When you search online for brands that accept Bitcoin as payment for their goods and services, you are most likely to be directed to lists that are grossly misleading.

It is not in dispute that Satoshi Nakamoto meant Bitcoin to be a form of money. That is a medium of exchange, store of value, and unit of account.

Nakamoto actually makes that very clear right at the very beginning of the Bitcoin white paper, where they introduce the cryptocurrency as ‘a purely peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution.’

As a store of value, Bitcoin has actually done very well in the decade that has gone by since its launch. In 2024, even mainstream corporate entities are adding it to their balance sheets as an asset. That is in addition to hundreds of thousands of enthusiasts who HODL it for future use.

Meanwhile, there is very little use of Bitcoin as a unit of account and as far as its acceptance as payment for goods and services (medium of exchange), Bitcoin is still a work in progress.   The actual number of US businesses that accept it is hard to come by, especially because of the lack of a mechanism to do an accurate enumeration. One often cited study by the Fintech firm Fundera puts the number at about 2300. That is physical merchants, mostly corner shops and cafes. If you try and look for major businesses that accept Bitcoin for online purchases, the list shrinks to no more than a few dozens of merchants. Online lists of merchants that accept Bitcoin are copied from inaccurate or un-updated originals.

All in all, businesses that are often listed as accepting Bitcoin as a form of payment for their goods and services can be put into three broad categories.

1. Those that don’t even know that they accept Bitcoin.

Yes, there are hundreds of American brands that are often listed as among those that accept Bitcoin, but then it turns out that they have never included it in the list payment methods they accept.

2. Brands that accept Bitcoin for very limited use.

It is often the case that a major brand has chosen to accept Bitcoin but only for niche products or very limited use. These merchants are often included in the list of those that accept Bitcoin. However, that is often misleading especially when you consider that the goods or services that they sell for Bitcoin are too niched or inaccessible to the average customer.

For example, the fashion brand Ralph Lauren has since early 2023 been listed as among major American brands that accept Bitcoin. However, the fact is that it is only a single shop in Miami’s Design District that accepts Bitcoin out of 222 that exist across the country. And their online shop does not accept Bitcoin, at least not yet.

Another example is Microsoft. While the tech company announced in 2014 that it had started accepting Bitcoin, such payment option is not available on their online website (at least not in the US).

Other brands that show up frequently on online lists of merchants accepting Bitcoin but do not actually accept Bitcoin payments online include Rakuten, Burger King, KFC, Subway and Starbucks. Perhaps they do so in only a few local stores. Then there are brands such as  Tesla and Reddit, that at some point announced they would accept Bitcoin, but have since discontinued the practice.

3. Brands that actually accept Bitcoin.

A brand that actually accepts Bitcoin is one where the shopper uses their own Bitcoin wallet directly at the point of sale. This type of transaction falls into two subcategories.

The first is where there is a payment processor (e.g. Bitpay) acting as an interface between the customer and the merchant but within the point of sale system. In this arrangement, the merchant does not hold the Bitcoin. For every transaction, the processor takes the Bitcoin, exchanges it at the reigning market rate, and deposits the dollar amount in the merchant’s bank account.

The second is where merchants directly accept and keep Bitcoin. Because of the risk of losing profit margins to market volatility, very few merchants, as of 2024, actually accept and hold Bitcoin.

So how do you find merchants that accept Bitcoin online directly or through a payment processor?

That is where we come in. Bitaggregator is where you find online businesses that accept Bitcoin. We take the necessary steps to verify that each business that is presented actually accepts Bitcoin.