Coinbase Commerce Removes Native Bitcoin Payment Support for Merchants – What’s Going On?

Cryptocurrency experts detail alternative methods for Coinbase Commerce to facilitate native Bitcoin transactions following the removal of support.

Other Options for Coinbase Commerce to Back Bitcoin Transactions

📅 Last updated: February 24, 2024 12:57 EST | ⏰ 5 min read

Image Source: Rachel Wolfson

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 Twitter 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.”

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As a result, Dowling detailed all the ways users could still leverage Coinbase Commerce for payments within her Twitter 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.”

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 Blocking.net 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 Twitter thread, this accounts for a significant portion of the Bitcoin volume Coinbase Commerce handles.

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 Blocking.net 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 compared 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 Twitter account that the company is in the process of integrating the Lightning Network into Coinbase.

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 costs 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 Blocking.net 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 Twitter, 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 Stacks.

“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 an 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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🤔 Q&A

Q: Why did Coinbase remove native Bitcoin payment support for merchants on Coinbase Commerce?

A: Coinbase made this decision because customers were struggling with operational challenges managing crypto volatility risk, resolving incorrect payments, and limited asset support. Removing native Bitcoin payment support allows them to address these issues more effectively.

Q: Will Coinbase still allow customers to use Bitcoin for payments?

A: Yes, Coinbase Commerce will still allow customers to pay with unspent transaction output (UTXO) assets like Bitcoin from their Coinbase account. This accounts for a significant portion of the Bitcoin volume Coinbase Commerce handles.

Q: What are the alternatives for native Bitcoin payments?

A: Coinbase Commerce is exploring alternative solutions, such as layer 2 (L2) solutions. One example is Stacks (STX), a Bitcoin L2 infrastructure, which can help power instant Bitcoin payments. Additionally, the integration of the Lightning Network into Coinbase is being considered as another alternative.

Q: What is the difference between the Lightning Network and a Bitcoin L2 like Stacks?

A: The Lightning Network is a peer-to-peer payment protocol built on the Bitcoin blockchain that facilitates instant, secure, and semi-private transactions. On the other hand, a Bitcoin L2, such as Stacks, enables transactions without using Bitcoin’s base layer, resulting in shorter transaction times. Both solutions have their advantages, but a Bitcoin L2 may be better suited for everyday payments.

Q: What challenges may affect the adoption of native Bitcoin payments on Coinbase Commerce?

A: One challenge is skepticism within the community regarding Coinbase’s support for the Lightning Network. Additionally, there is a need for further exploration and integration of Bitcoin L2 solutions like Stacks. Technical considerations, such as different smart contract languages, also present challenges that need to be addressed for seamless integration.

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🔍 References:

1. Coinbase Commerce Removes Native Bitcoin Payment Support for Merchants
2. Bitcoin Lightning Network
3. Stacks (STX), a Bitcoin L2 infrastructure
4. Lightning Network Growth Report
5. Smart Contract Language Clarity

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[Note: The content of this article is for informational purposes only and should not be construed as investment advice. Always conduct your own research before making any investment decisions.]

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