While many considered this a bold move, it is also a reasonable step for the Central American country’s government. The state lacks its own national currency – before adopting BTC, USD was the only official means of payment.
The country’s financial system is also not stand-alone so it constantly needs an influx of additional funds
For these reasons, El Salvador’s government decided to make bitcoin a legal tender in a law that is expected to come into effect on 7 September.
The question now is: will El Salvador’s case with bitcoin facilitate crypto adoption? In other terms, can we pay for coffee with BTC in the near future?
At first glance, using bitcoin to pay for an everyday purchase like a cup of coffee may seem a simple but essential way to increase the adoption of cryptocurrencies. However, it is not so easy for a coffee shop to accept BTC for its products in practice.
To understand this it is essential to revisit the basics of bitcoin.
The cryptocurrency’s network forms blocks in approximately 10 minutes, representing the minimum time to wait until a miner confirms someone’s transaction. While confirmations take time, they are crucial to consider a transfer valid with a high level of confidence to avoid issues like double-spending.
For this reason, a simple integration of bitcoin where the coffee shop accepts BTC via its wallet without any payment processing services is not ideal for consumers as many cannot afford to wait 20-30 minutes (or even 10 minutes) for their transactions to get confirmed.
As an alternative, the coffee shop could decide to accept only highly scalable digital assets with rapid block times (or allow only Lightning Network transactions for bitcoin) to speed up the process.
However, while it solves the above issue, other problems still remain. For example, the coffee shop has to determine a fair exchange rate as well as find a method to optimise crypto-fiat conversions to manage the company’s expenses.
Furthermore, accepting bitcoin instead of fiat may raise some red flags at the coffee shop’s bank or payment provider when it discovers the new crypto activity (financial institutions are more prone to see the risks of digital assets than their potential opportunities).
As a result, allowing customers to pay for their flat whites with Bitcoin without any help from a third party comes with much more drawbacks than benefits for the business.
On the other hand, partnering with a service provider that already has a working infrastructure to process crypto payments for merchants allows the coffee shop to accept bitcoin without facing any of the issues mentioned earlier. PayPal, for example, already made this possible in the United States.
However, this means that merchants cannot yet manage crypto payments efficiently without the participation of traditional money and financial providers.
As illustrated with the coffee shop’s example, merchants currently need a third-party financial solution to accept bitcoin for their products without putting their businesses in danger or dedicating much of their resources to make their own systems work.
However, this could change in the future. Although bitcoin was created over 12 years ago, the cryptocurrency industry is still in an early stage.
For that reason, the technology powering digital asset networks has great room to grow. And, in the next few years, there is a good chance someone will develop the crucial solution merchants need to accept BTC payments efficiently without traditional service providers.
Although, as most people are not ready yet to buy their coffee with bitcoin, consumer behaviour has to change drastically to achieve this.
And, until we see a significant shift around this area, businesses will have to rely on traditional financial providers to adopt cryptocurrency payments for their products and services.
That said, crypto adoption could speed up significantly if more nations follow El Salvador’s footsteps (presuming that the Central American country’s bitcoin experiment will be successful).
Konstantin Anissimov is executive director at CEX.IO