Different Approaches for Coinbase Commerce to Facilitate Direct Bitcoin Transactions

Coinbase has recently revealed its decision to discontinue support for native Bitcoin (BTC) payments on its merchant payment platform, Coinbase Commerce.

The firm’s product lead, Lauren Dowling, mentioned on her X account on February 18 that “customers faced operational difficulties related to managing crypto volatility risk, the manual effort required to rectify incorrect payments (e.g., underpayments), and limited asset support.”

1/ Hey folks, I’m the product lead for Coinbase Commerce and want to share some thoughts on how the product is evolving, why we’ve made these changes, and clarify what it means for our asset support strategy moving forward.

— Lauren Dowling (@Lauren_Dowling_) February 17, 2024

Consequently, Dowling elaborated on the various ways users could continue to utilize Coinbase Commerce for payments in her X thread.

In response to a user query, Dowling indicated that “Coinbase Commerce will transition all users to the new version of the product on April 15th.”

Hi Loshan – Coinbase Commerce will be transitioning all users to the new version of the product on April 15th. We will still 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 cessation of support for native Bitcoin payments by Coinbase Commerce – a leading cryptocurrency payment service provider – has generated debate within the sector.

Joe Nakamoto, a Bitcoin journalist, informed Cryptonews that he believes Coinbase has deviated from the foundational principles of Bitcoin.

“Bitcoin embodies peer-to-peer finance, privacy, and the freedom to transact without intermediaries,” Nakamoto stated. “Its choice to eliminate actual Bitcoin reflects that.”

Coinbase Commerce will still permit customers to make payments using unspent transaction output (UTXO) assets like Bitcoin from their Coinbase accounts.

As per Dowling’s X thread, this represents a substantial portion of the Bitcoin volume that Coinbase Commerce processes.

7/ Customers retain the ability to pay with UTXO assets like bitcoin from their Coinbase account, which accounts for a significant portion of the bitcoin volume we were seeing before making 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 team focused on enhancing the Bitcoin ecosystem – conveyed to Cryptonews that native Bitcoin payments have consistently posed certain challenges.

“There is a challenge in terms of coordination, both with on-chain and off-chain protocols,” Shah remarked. “On-chain fees also fluctuate with miner activity and on-chain demand.”

Shah further clarified that Coinbase Commerce’s choice to continue supporting UTXO assets like Bitcoin may simplify payment processes.

“A UTXO signifies a specific amount of Bitcoin that has been authorized by a sender and is available for the recipient to spend,” she explained.

However, Shah noted that layer 2 (L2) solutions might also facilitate seamless native Bitcoin transactions. For instance, she pointed out that Stacks (STX), a Bitcoin L2 infrastructure, can enable instant Bitcoin payments.

“With accelerants like USDC stablecoins and advanced smart contracting now operational on layers, like Stacks, Bitcoin can maintain Lindy-proven security assurances globally while also facilitating instant payments, debit services, tokenized assets, and more,” she stated.

Shah also indicated that a Bitcoin L2 such as Stacks could offer a more effective solution for native Bitcoin payments compared to the Bitcoin Lightning Network.

The Lightning Network is a peer-to-peer payment protocol built on the Bitcoin blockchain designed to facilitate instant, secure, and semi-private transactions.

Coinbase CEO, Brian Armstrong, recently mentioned on his X account that the company is working on integrating the Lightning Network into Coinbase.

This isn’t quite right, so let me share some more context in case helpful:

– Commerce uses a new EVM payment protocol.
– You can pay from any self-custody wallet
– We believe paying with crypto is going to primarily happen on Layer 2 in the future and we want to help make that…

— Brian Armstrong (@brian_armstrong) February 17, 2024

While the Lightning Network could potentially restore support for native Bitcoin payments on Coinbase, Shah explained that a Bitcoin L2 might be a more advantageous solution.

“With a Bitcoin L2, you no longer have to rely on Bitcoin’s base layer. This means transaction times would be shorter, proving to be a more effective solution for everyday payments,” she noted.

Shah further mentioned that the current transaction fee for low-priority transactions on Stacks is only 44 cents.

“Payments are a significant aspect of how everyday users aim to utilize Bitcoin, and unlocking the ability to transact seamlessly, without sacrificing the benefits of the Bitcoin base layer, must be prioritized,” Shah emphasized.

Lightning Network Versus a Bitcoin L2

While a Bitcoin L2 such as Stacks may facilitate easier native Bitcoin transactions, Nakamoto explained that the Lightning Network might be the optimal choice for a platform like Coinbase.

Indeed, the adoption of the Lightning Network is rapidly increasing. Data from a report published by the Bitcoin-only exchange River indicates that the Lightning Network experienced an estimated 1,212% growth over two years from August 2021 to 2023.

Findings reveal that approximately 6.6 million routed transactions occurred in August last year, marking a significant increase compared to 503,000 transactions in August 2021.

Although noteworthy, Mark Hendrickson, General Manager at Bitcoin-only wallet provider Leather, informed Cryptonews that he sees an opportunity for platforms like Coinbase to highlight that Bitcoin requires blockchain-based L2s, rather than peer-to-peer networks like Lightning.

“This is primarily due to the smart-contract advantages that come with L2s like Stacks,” Hendrickson stated.

In light of this, Hendrickson noted that it may be simpler for enterprises like Coinbase to integrate a type of blockchain-based L2 alongside its Ethereum Virtual Machine (EVM) based L2s.

As Armstrong mentioned on X, Coinbase Commerce utilizes “a new EVM payment protocol.” He also stated, “We believe paying with crypto is going to primarily happen on Layer 2 in the future and we want to help make that happen.”

According to Hendrickson, a Bitcoin L2 — such as Stacks – will function similarly to an EVM L2 compared to a peer-to-peer network like Lightning.

“If Coinbase is considering integrations that are designed to endure through not just the next bull run, but every bull run, then blockchain-based L2s will prevail,” he remarked.

Challenges May Hamper Adoption for Native BTC Payments

Although there are alternative methods for implementing native Bitcoin payments across Coinbase Commerce, it may take the platform some time to advance.

For instance, Nakamoto remains doubtful that Coinbase will adopt the Lightning Network.

“Brian Armstrong used to be a Bitcoin advocate but he has succumbed to ‘innovation’ in crypto and web3,” he stated. “He struggles to keep pace with Bitcoin innovation and development. For instance, he recently confused my Bitcoin lightning address with an email address.”

Furthermore, Shah believes that Coinbase has yet to investigate Bitcoin L2 solutions like Stacks.

“The Stacks ecosystem is undergoing a hard fork, so perhaps afterwards Coinbase will consider Stacks,” she noted.

Shah added that Stacks is built on the smart contract language Clarity, while most L2 EVMs are constructed on Solidity, a more widely recognized smart contract language.

Despite these obstacles, Shah is optimistic that most Bitcoin transactions will occur on a L2 infrastructure.

“I predict that as soon as post-halving this year, Bitcoin will increasingly depend on its Layer 2 infrastructure for the majority of transactions, while the base layer focuses on high-value settlements.”

The post Alternative Ways for Coinbase Commerce to Support Native Bitcoin Payments appeared first on Cryptonews.