BitPay Industry Research Shows Growth, But Take with Grain of Salt

Earlier this year, the total number of merchants around the world accepting bitcoin for payment surpassed the 100,000 mark.

Earlier this year, the total number of merchants around the world accepting bitcoin for payment surpassed the 100,000 mark.

A recent research study conducted by Bitcoin payment processor BitPay complements this statistic with numbers provided to International Business Times, which seem to indicate an impressive pace of industry growth.

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Bitcoin Usage

For its part, BitPay processed $158,800,000 worth of transactions last year, a 47.5% increase over the year prior ($107,575,000). In both years combined, an estimated $8 million in credit card fees were saved.

The total number of transactions jumped from 209,420 to 563,568, an increase of 169%. If follows that the average amount per transaction shrunk by 45% from $513 to $281. It is this last metric that has elicited assessment that bitcoin has graduated from its a role as commodity for large investor returns to that of currency, used by average consumers to pay for goods and services.

The key point for contention is if in fact the current business model treats bitcoin as a real currency. Not emphasized in the study was the fact that the vast majority of merchants have their bitcoin converted immediately to fiat (BitPay merchants preserved 28,600 BTC as bitcoin in 2014, which represents well below 10% of the amount transacted). So merchants are not treating Bitcoin as currency, rather finding greater value in its capabilities as a money transfer technology.

The growth in acceptance will inevitably continue (why shouldn’t it?), but it will be interesting to see if it can maintain the same pace. A merchant has nothing to lose by making the decision to accept bitcoin, and is more likely to gain.

The aggregate cost of a transaction to the economy, however, is up for debate. It has been argued that credit card fees consume roughly 1-3% of a transaction’s value, seemingly making Bitcoin the more efficient avenue. Be that as it may, the following costs in the bitcoin transaction-conversion cycle need to be considered:

(a) The actual cost to process the transaction (and have it converted to fiat) for the merchant: 0.2% to 1%

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(b) The costs of obtaining bitcoin to spend. If mining bitcoin, there are likely grander considerations. But if buying through an exchange, one needs to account for trading fees (0.2%-0.5%), deposit/withdrawal fees (if any), and the costs of transferring/wiring fiat to the exchange.

(c) The weighted cost of exchange rate risk arising from exposure to volatile bitcoin prices.

Not factored are Bitcoin network transaction fees, which are typically miniscule and usually optional.

In aggregate, the cost of the bitcoin shopping cycle can come out higher, albeit split between shopper and merchant.

Indeed, the potential for the blockchain to serve for various decentralized recordkeeping applications has seen a greater ramp up of interest in 2015. For financial applications, banks are now looking into how the blockchain can streamline currency transfers, and are less interested in bitcoin’s role as a currency.

Other Stats of Interest

BitPay says 53% of the 100,000 merchants accepting bitcoin did so with their service. The lion’s share of the remaining 47% likely goes to Coinbase.

The top countries in terms of signup growth in 2014 were Brazil, India and Indonesia. The top currencies exchanged by BitPay merchants for bitcoin in 2o14 were USD ($87.7M), EUR ($37.3M), CAD ($3.1M) and GBP ($3.0M). Noticeably absent are the Chinese yuan and Japanese yen. China has reportedly become a major center for bitcoin activity; there may still be much room for expansion in the merchant market.

Ripple filled the most cryptocurrency related jobs (45) last year, followed by Coinbase (39), BitPay (29), Circle (24), Kraken (24) and ItBit (21).

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