Coinbase recently announced that it would be removing support for native Bitcoin (BTC) payments across its payment platform for merchants, Coinbase Commerce.
The company’s head of product, Lauren Dowling, stated on her X account on February 18 that “customers were struggling with operational challenges managing crypto volatility risk, manual burden of resolving incorrect payments (eg: underpaid) 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
As a result, Dowling detailed all the ways users could still leverage Coinbase Commerce for payments within her X thread.
Dowling also responded to a user comment, noting that “Coinbase Commerce will be transitioning 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 discontinued support for native Bitcoin Payments by Coinbase Commerce – one of the largest cryptocurrency payment service providers – has sparked controversy within the industry.
Joe Nakamoto, a Bitcoin journalist, told Cryptonews that he believes Coinbase has strayed away from the founding principles of Bitcoin.
“Bitcoin reflects peer to peer finance, privacy and the freedom to transact without a middleman,” Nakamoto said. “Its decision to remove actual Bitcoin is reflective of that.”
Coinbase Commerce will still allow customers to pay with unspent transaction output (UTXO) assets like Bitcoin from their Coinbase account.
According to Dowling’s X thread, this accounts for a significant portion of the Bitcoin volume Coinbase Commerce handles.
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 of builders growing the Bitcoin ecosystem – told Cryptonews that native Bitcoin payments have always presented somewhat of a challenge.
“There is a challenge in terms of coordination, both with on-chain and off-chain protocols,” Shah said. “On-chain fees also ebb and flow with miner activity and on-chain demand.”
Shah further explained that Coinbase Commerce’s decision to continue to support UTXO assets like Bitcoin may make payments easier.
“A UTXO represents a certain amount of Bitcoin that has been authorized by a sender and is available to be spent by a recipient,” she said.
However, Shah pointed out that layer 2 (L2) solutions may also ensure seamless native Bitcoin transactions. For example, she noted that Stacks (STX), a Bitcoin L2 infrastructure, can help power instant Bitcoin payments.
“With accelerants like USDC stablecoins and advanced smart contracting now active on layers, like Stacks, Bitcoin can retain Lindy-proven security assurances globally while also powering 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 in comparison to the Bitcoin Lightning Network.
The Lightning Network is a peer-to-peer payment protocol built on the Bitcoin blockchain intended to power 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.
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 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 have to use Bitcoin’s base layer. This means transaction time would be shorter, proving to be a better solution for everyday payments,” she said.
Shah further noted that the current transaction fee for low-priority transactions on Stacks only cost 44 cents.
“Payments are a large part of how everyday users seek to use Bitcoin, and unlocking the opportunity to transact seamlessly, without losing the benefits of the Bitcoin base layer must be prioritized,” Shah noted.
Lightning Network Versus a Bitcoin L2
While a Bitcoin L2 such as Stacks may help ensure easier native Bitcoin transactions, Nakamoto explained that The Lightning Network may be the best option for a platform like Coinbase.
“The likes of Kraken, CoinCorner, Relai, River and OKX have all integrated Lightning as a spending, payments and even savings solution,” said Nakamoto. “Some of them have had Lightning for years, so what’s stopping Coinbase?”
Indeed, the usage of the Lightning Network is quickly growing. Data from a report published by the Bitcoin-only exchange River notes that the Lightning Network witnessed an estimated 1,212% growth in two years between August 2021 and 2023.
Findings show that around 6.6 million routed transactions occurred during August last year. This represents a significant jump compared with August 2021’s 503,000 transactions.
Although notable, Mark Hendrickson, General Manager at Bitcoin-only wallet provider Leather, told Cryptonews that he believes there is an opportunity for platforms like Coinbase to emphasize that Bitcoin needs blockchain-based L2s, rather than peer-to-peer networks like Lightning.
“This is really because of the smart-contract advantages that come with L2s like Stacks,” said Hendrickson.
Given this, Hendrickson noted that it may be easier for enterprises like Coinbase to integrate a breed 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 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 — like Stacks – will work similarly to an EVM L2 in comparison to a peer-to-peer network, like Lightning.
“If Coinbase is looking at integrations that are being built to last through not just the next bull run, but every bull run, then blockchain-based L2s will win out,” he remarked.
Challenges May Hamper Adoption for Native BTC Payments
Although there are alternative solutions for implementing native Bitcoin payments across Coinbase Commerce, it may take the platform some time to move forward.
For instance, Nakamoto remains skeptical that Coinbase will support the Lightning Network.
“Brian Armstrong used to be a Bitcoin advocate but he has fallen prey to ‘innovation’ in crypto and web3,” he said. “He fails to keep up with Bitcoin innovation and development. For example, he recently confused my Bitcoin lightning address with an email address.”
Moreover, Shah believes that Coinbase is yet to explore Bitcoin L2 solutions like Stack.
“The Stacks ecosystem is going through a hard fork, so maybe afterwards Coinbase will add Stacks to its radar,” she said.
Shah added that Stacks is built on the smart contract language Clarity. Yet most L2 EVMs are built on Solidity, a more well-known smart contract language.
Despite these challenges, Shah believes that most Bitcoin transactions will take place across a L2 infrastructure.
“I predict that as soon as post-halving this year, Bitcoin will grow to rely on its Layer 2 infrastructure for most transactions, while the base layer focuses on high-value settlements.”
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