Why Bitcoin May Not Be Ready For Commerce (Or Starbucks)

Starbucks brewed up a swirl of cryptocurrency intrigue last week. The coffee chain said it is among the companies that will work with Intercontinental Exchange’s planned digital asset company, Bakkt, “to create an integrated platform that enables consumers and institutions to buy, sell, store and spend digital assets on a seamless global network.”

Following the announcement, reports surfaced that consumers would be able to pay for their favorite Frappuccino or latte with digital currency. However, the potential arrival of bitcoin as a payment option at Starbucks appeared to be a bit premature.

Following reports that consumers would be able to buy their favorite coffee beverages with bitcoin, Starbucks quickly put out a clarification. In a statement, the company said it is “not accepting digital assets.” The company had, after all, said in its original statement that it “will play a pivotal role in developing practical, trusted and regulated applications for consumers to convert their digital assets into U.S. dollars for use at Starbucks.”

And there’s the rub: Consumers won’t actually be able to pay with bitcoin at Starbucks. They will have to change their bitcoin into fiat currency before they can buy their Pike Place.

That is a key distinction, as exchanges between bitcoin and fiat come with a transaction cost. And Senior Researcher Nicholas Weaver of the International Computer Science Institute told Bloomberg that, oftentimes, “the net cost of a bitcoin transaction is far more than a credit card transaction.” (Even so, it’s important to note that bitcoin transaction costs have fallen from $54 in December to under $1 today.)

Beyond the cost, bitcoin transactions do come with other challenges: They can’t be reversed, for example, and the value of bitcoin itself is still not stable. The popular cryptocurrency was worth just over $6,000 on mid-day Wednesday (August 8), for example, but it was worth over $7,000 on Tuesday (August 7), according to CoinDesk.

At the same time, people seem to be less enthusiastic about using their digital currency for commerce. Research from Chainalysis, Inc. indicates that the 17 biggest merchant processing services for crypto reported a whopping $411 million worth of transactions in September, but they only had $60 million worth of transactions in May. Will that change, with an established player such as Intercontinental Exchange coming on the stage with Bakkt and the help of retail partners like Starbucks?

In all, BKCM founder and CEO Brian Kelly told CNBC, “It’s very big news for bitcoin because people say, ‘Where can you spend it?’” Now, consumers may be able to use their bitcoin at Starbucks — with a little help from Bakkt.