It takes minutes for the network to confirm payments on the Bitcoin ledger. Only a few transactions can be processed per second, and each one costs between a few pence and few pounds. Comparing this with the tens of thousands-of-transactions-per-second capacity of credit card networks, many dismiss Bitcoin out of hand as a potential large-scale payments network.
But this is entirely wrong, because it compares apples with oranges.
Most people don’t consider that the existing financial system works in layers. You may make dozens or even hundreds of credit card transactions per month, but you probably only pay your credit card bill once. Similarly, your bank records your bill payment together with thousands of others, but then settles them all at once with a single payment on the bank ledger money system.
Bitcoin is also evolving layers, such as Lightning, a decentralized ‘layer-2’ network for instant Bitcoin payments. Lightning’s payments-per-second capacity is in the millions, with transaction speeds of up to a few milliseconds and near-zero fees. Lightning was first implemented in 2017, and has scaled quickly, with its bitcoin capacity growing fivefold in the two years to October 2022. This and other layer-2 systems (such as Liquid and Ark) could eventually keep most Bitcoin payments off the underlying base-layer ledger.
While still small in global dollar terms, such layered systems could eliminate the traditional payments system’s huge costs and frictions which are currently borne by business, and largely passed on to an oblivious public in the form of higher prices.
For example, credit card companies charge US businesses 1.3% - 3.5% of every transaction, whereas Lightning is practically free. Businesses must wait weeks to receive their money from card companies, but Lightning settles instantly, making the funds available straight away. And just like on the Bitcoin base layer, international payments need no foreign exchange fees or complicated and expensive cross-border bank transfers.
And with innovative Bitcoin companies offering instant fiat currency conversion services at both ends of Lightning transactions, parties transacting in dollars and euros don’t even need to know that they are using Bitcoin payment rails.
These are early days, but layer-2s such as Lightning are already functioning as a reliable instant payments solution, day in day out, all over the planet from El Salvador to the British Isles.
Bitcoin is the world’s best payment system.