Clover, a leading payment solution company for businesses, recently announced that it will pilot a 90-day trial using the Lightning Network for customers to pay for goods and services using Bitcoin (BTC -2.87%).
The Lightning Network solves some of Bitcoin’s main pitfalls that have limited the cryptocurrency’s ability to become a viable form of payments for everyday purchases. Unlike some of the newer blockchains that boast blazing speeds and low fees, Bitcoin is relatively slow and costly to use on smaller transactions. But with the Lightning Network, Bitcoin can become just as fast and cheap to use as these other blockchains, and could even come to compete with credit cards.
The mechanics are a little complicated, but essentially the Lightning Network acts as a second blockchain where transactions can be processed faster and cheaper, and later added to the main Bitcoin blockchain. By using the Lightning Network, Bitcoin effectively becomes a feasible form of payment. And even better, to the delight of businesses, they don’t have to pay those exorbitant credit card fees that take away from their bottom line.
If the trial by Clover is deemed successful, it could lead to direct integration with all Clover merchants and put Bitcoin head-to-head with the likes of Visa and Mastercard.
You’re probably wondering at this point, why would a business want to accept Bitcoin?
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Clunky, costly, and a little confusing
Credit card companies make their profits by charging a costly fee on both the cardholder and the business accepting the card. To use a credit card company’s network, businesses must pay a fee on every transaction.
In addition, while it appears as though making a purchase with a credit card happens instantaneously, there are multiple hurdles and checkpoints that the payment must pass through before being officially settled. Payments originate from the card user, then go through the network, eventually reaching the merchant’s bank. Following this, the payments are sent back for verification to ensure the transaction is attributed to the proper cardholder so that the issuer can bill the customer.
An alluring alternative
With the Lightning Network, this obstacle becomes streamlined. Instead of having to be processed by the credit card network, the merchant’s bank, and even the cardholder’s bank, payments on the Lightning Network are direct and settled virtually in real time. Not to mention the fees are often just fractions of a penny.
By using the Lightning Network, businesses can eliminate credit card fees (which can especially hinder small businesses), process transactions in real time, and receive compensation in the form of an asset that potentially increases in purchasing power (unlike the U.S. dollar).
For these reasons, it’s little wonder the Lightning Network is growing rapidly. Since its creation in 2018, the Lightning Network has blossomed into an expansive payment solution for Bitcoin that now boasts a near-record capacity, even in the midst of a brutal bear market.
If current trends continue, not only is Bitcoin in a position to remain one of the premier stores of value, but it could also become a viable form of payment. Should this future unfold, legitimization of Bitcoin would progress and thereby increase adoption. Because Bitcoin has a limited supply, increased demand could add considerable buying pressure and lead to price increase.
This process likely won’t follow a direct path, but it only makes buying today while prices are still low that much more appealing.
RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin, Mastercard, and Visa. The Motley Fool has a disclosure policy.
