Last update:
February 24, 2024 12:57 EST | 5 minutes read
Source: By-3
Coinbase recently announced that it will end support for native Bitcoin (BTC) payments on its merchant payments platform, Coinbase Commerce.
The company's head of product, Lauren Dowling, explained on her limited asset support.”
1/ Hi guys, I'm the product lead for Coinbase Commerce and I'd like to share some thoughts on how the product is evolving, why we made these changes, and what this means for our asset support strategy going forward. 👇
— Lauren Dowling (@Lauren_Dowling_) February 17, 2024
As a result, in her X thread, Dowling explained all the ways users can continue to use Coinbase Commerce for payments.
Dowling also responded to a user comment, noting that “Coinbase Commerce will be moving all users to the new version of the product on April 15th.”
Hello Loshan – Coinbase Commerce will be moving all users to the new version of the product on April 15th. We will continue to support self-custody payments on Base, Polygon and Ethereum. We will continue to support payments in BTC and LTC via https://t.co/TYywCs150z
— Lauren Dowling (@Lauren_Dowling_) February 20, 2024
Is Coinbase moving away from Bitcoin?
Unsurprisingly, the withdrawal of support for native Bitcoin payments by Coinbase Commerce – one of the largest cryptocurrency payment processors – has caused controversy in the industry.
Joe Nakamoto, a Bitcoin journalist, told Cryptonews that he believes Coinbase has deviated from the core principles of Bitcoin.
“Bitcoin reflects peer-to-peer financing, privacy and the freedom to transact without intermediaries,” Nakamoto said. “The decision to remove real Bitcoin reflects this.”
Coinbase Commerce will continue to allow customers to pay with Unspent Transaction Output Assets (UTXO), such as Bitcoin, from their Coinbase account.
According to Dowling's X-Thread, this accounts for a significant portion of the Bitcoin volume that Coinbase Commerce processes.
7/ Customers still have the option to pay with UTXO assets such as Bitcoin from their Coinbase account, which represents a significant portion of the Bitcoin volume we saw before these changes.
— Lauren Dowling (@Lauren_Dowling_) February 17, 2024
Native Bitcoin payment alternatives
Interestingly, Rena Shah, vice president of operations and strategy at Trust Machines – a development team building the Bitcoin ecosystem – told Cryptonews that native Bitcoin payments have always presented a bit of a challenge.
“There is a challenge in terms of coordination, both on-chain and off-chain protocols,” Shah said. “On-chain fees also fluctuate with miner activity and on-chain demand.”
Shah further explained that Coinbase Commerce's decision to continue supporting UTXO assets like Bitcoin could make payments easier.
“A UTXO represents a specific amount of Bitcoin that has been authorized by a sender and can be spent by a recipient,” she said.
However, Shah pointed out that Layer 2 (L2) solutions could also ensure seamless native Bitcoin transactions. For example, she noted that Stacks (STX), a Bitcoin L2 infrastructure, can help enable instant Bitcoin payments.
“With accelerators like USDC stablecoins and advanced smart contracting now active at levels like Stacks, Bitcoin can maintain Lindy’s proven security guarantees globally while enabling instant payments, debit services, tokenized assets and more,” she said.
Shah also mentioned that a Bitcoin L2 like Stacks could provide a better solution for native Bitcoin payments compared to the Bitcoin Lightning Network.
The Lightning Network is a peer-to-peer payment protocol based on the Bitcoin blockchain designed to enable instant, secure and semi-private transactions.
Coinbase CEO Brian Armstrong recently stated on his X account that the company is in the process of integrating the Lightning Network into Coinbase.
That's not entirely true, so let me provide a little more context in case it's helpful:
– Commerce uses a new EVM payment protocol.
– You can pay from any self-custody wallet
– We believe that paying with crypto in the future will be primarily done on Layer 2 and we want to help make this happen…
— Brian Armstrong 🛡️ (@brian_armstrong) February 17, 2024
While the Lightning Network could bring back support for native Bitcoin payments on Coinbase, Shah explained that a Bitcoin L2 may be a better solution.
“With a Bitcoin L2, you no longer need to use the base layer of Bitcoin. This means the transaction time would be shorter, which would prove to be a better solution for everyday payments,” she said.
Shah further noted that the current transaction fee for low priority transactions on Stacks is only 44 cents.
“Payments are a large part of how everyday users want to use Bitcoin, and unlocking the ability to seamlessly transact without losing the benefits of the Bitcoin base layer must be a priority,” Shah noted.
Lightning Network vs Bitcoin L2
While a Bitcoin L2 like Stacks could help ensure easier native Bitcoin transactions, Nakamoto explained that the Lightning Network may be the best option for a platform like Coinbase.
“Companies like Kraken, CoinCorner, Relai, River and OKX have all integrated Lightning as a spending, payment and even savings solution,” Nakamoto said. “Some of them have had Lightning for years, so what’s stopping Coinbase?”
In fact, usage of the Lightning Network is increasing rapidly. Data from a report by Bitcoin-only exchange River shows that the Lightning Network experienced an estimated growth of 1,212% in two years between August 2021 and 2023.
The results show that around 6.6 million forwarded transactions took place in August last year. This represents a significant increase compared to the 503,000 transactions in August 2021.
While this is noteworthy, Mark Hendrickson, general manager at Bitcoin-only wallet provider Leather, told Cryptonews that he believes platforms like Coinbase have an opportunity to emphasize that Bitcoin needs blockchain-based L2s, not peer-to-peer -Peer networks like Lightning.
“This is largely due to the smart contract benefits that L2s like stacks bring,” said Hendrickson.
With this in mind, Hendrickson pointed out that it may be easier for companies like Coinbase to integrate some form of blockchain-based L2s alongside its Ethereum Virtual Machine (EVM)-based L2s.
As Armstrong mentioned on X, Coinbase Commerce uses “a new EVM payment protocol.” He also wrote: “We believe that paying with crypto in the future will be primarily done on Layer 2 and we want to help make that happen.”
According to Hendrickson, a Bitcoin L2 – like Stacks – functions similarly to an EVM L2 compared to a peer-to-peer network like Lightning.
“If Coinbase is looking for integrations that are built to last not just the next bull market, but any bull market, then blockchain-based L2s will prevail,” he noted.
Challenges may hinder the adoption of native BTC payments
Although there are alternative solutions for implementing native Bitcoin payments on Coinbase Commerce, it may take some time for the platform to move forward.
For example, Nakamoto remains skeptical that Coinbase will support the Lightning Network.
“Brian Armstrong used to be a Bitcoin proponent, but he has fallen victim to 'innovation' in crypto and Web3,” he said. “It is failing to keep up with the innovation and development of Bitcoin. For example, he recently confused my Bitcoin Lightning address with an email address.”
Additionally, Shah believes that Coinbase has not yet explored Bitcoin L2 solutions like Stack.
“The Stacks ecosystem is going through a hard fork, so perhaps Coinbase will add Stacks to its radar after that,” she said.
Shah added that Stacks is based on the Clarity smart contract language. Still, most L2 EVMs are based on Solidity, a more popular smart contract language.
Despite these challenges, Shah believes that most Bitcoin transactions will take place over L2 infrastructure.
“I expect that already after this year’s halving, Bitcoin will increasingly rely on its Layer 2 infrastructure for most transactions, while the base layer focuses on high-value settlements.”
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