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LONDON: The use of bitcoins for commercial payments has decreased dramatically this year, even if the original digital currency starts to meet one of the basic characteristics of any payment currency: stability.
The value of the bitcoins managed by the main payment processors has decreased by about 80% in the year to September, as shown by the data of the researcher Chainalysis. This suggests that the cryptocurrency is struggling to mature from speculative assets to a serious alternative to money issued by the state.
Months of relative calm in bitcoin prices after the wild swings last winter had fueled the hopes that it would become widely used for payments, its intended purpose.
But its collapse in use as a payment currency has left large funding and encrypted insiders looking at a better technology infrastructure to help Bitcoin take off as a way to pay.
"There should be a stability requirement if it wants to become another form of money," said Joni Teves, a UBS strategist in London.
"But one thing that would bring the bitcoin into the mainstream is scalability – is it able to process the value or volume of transactions that money tends to do?"
Blockchain technology, in which all bitcoin activities are recorded and validated, can process only a fraction of the transactions per second that may be the major credit card companies. This makes mass use unworkable.
Bitcoin continues to fluctuate in price, as shown by the 30% dip this week. For a spell last month, however, the cryptocurrency was more stable than US shares.
Despite this increasing stability, the value of bitcoin payments has plummeted to 96 million US dollars in September from a maximum of 427 million US dollars, the data of Chainalysis show.
The company interviewed 17 bitcoin payment processors, including BitPay in Atlanta, one of the largest. Most of the merchants who accept bitcoins do not do it directly, but they use brokers like BitPay to convert bitcoins into legal currencies.
The complete data on the bitcoin used for payments are fragmented, as negotiations with other currencies tend to be included together with its use for commercial payments.
That said, the separate figures for individual payment processors reflect the downward trend. For example, at Vancouver-based Coinpayments, incoming and outgoing transactions plummeted by more than half between January and October, according to the OXT blockchain analysis site.
Coinpayments did not respond to requests for comment.
"Bitcoin payment processing is seeing a slow but substantial decline," said Lex Sokolin, global director of the fintech strategy at the Autonomous Next research company, of the Coinpayments data.
FIRST DECEMBER
During its first decade, Bitcoin has attracted a mix of investors, some convinced they can redesign global finance by shifting traditional payment methods and others attracted by quick gains that brought it close to $ 20,000 in December.
Since then it has lost three quarters of its value, falling below $ 4,500 on Tuesday, burning businesses along the way that they hoped to profit from growing investor interest.
Chip designer Nvidia Corp, for example, saw its shares crash sharply last week after blaming disappointing results on unsold chips that accumulated after the cript mines boom vanished.
The relative stability of Bitcoin this year, however, has raised expectations of the diffusion of payments by individuals and companies.
"The lack of volatility is a good step in the right direction that begins to make it viable for some of the non-retail use cases," said Zeeshan Feroz, British CEO of Coinbase, one of the largest cryptocurrency exchanges.
But both the major financial companies and the entrepreneurs of the cryptocurrency claim that stability is not enough.
To get traction, bitcoins must be faster and cheaper, they say. Clearer rules on a resource that has irritated financial regulators around the world would also contribute to giving users a sense of legitimacy, said Teves from UBS.
LIGHTING NETWORK
While coordinated regulation remains far away, some developments designed to address the so-called "scalability" problem – how many transactions per second can handle the bitcoin network – are under way.
Although in its infancy, the lightning network – code that can be added to the bitcoin blockchain designed to make payments faster and cheaper – is growing in use and capacity.
The network this week reached a record of 4,101 "nodes" or computers that run its software, according to the 1ML data aggregator, an increase of over a quarter since August.
Lightning is popular, users say, because it allows users to send money to each other instead of having to complete long blockchain operations.
"Lightning fixes some bitcoin scaling problems," said Ed Cooper, who oversees the cryptocurrencies at the startup fintech Revolut. "He is receiving payments in kind in the bitcoin network.
(Report by Tom Wilson, edited by Catherine Evans)
