The Evolution of Cryptocurrency Payments

On January 12, 2009, the first ever Bitcoin transaction between the still-elusive Satoshi Nakamoto and the late cryptocurrency pioneer Hal Finney was made. As Finney himself described in a forum post he made on March 2014, Nakamoto had sent him 10 Bitcoins to test out what was then a newly launched system.

More than a decade later, the methods of transacting Bitcoin and other cryptocurrencies have evolved alongside the currencies themselves, adapting with newer technologies and market demands. Here, we take a look at how cryptocurrency payments have changed over time:

First recorded product purchase with Bitcoin: pizzas

When Nakamoto sent those 10 Bitcoins to Finney, the two completed the transaction through a PC-based program specifically made to handle Bitcoin transactions. In a sense, those 10 Bitcoins were sent to Finney similar to how one would send files over an email, although using a more secure underlying network. And while Bitcoin was moving between the digital “wallets” of its early adopters, it wasn’t until over a year after the inaugural transaction between Nakamoto and Finney when the first Bitcoin purchase was made.

On May 22, 2010, a programmer and early Bitcoin adopter named Laszlo Hanyecz sent 10,000 BTC to another user on BitcoinTalk, a Bitcoin-focused online forum, which was used as payment for two large Papa John’s pizzas delivered to Hanyecz’s house. While today that would mean purchasing two large pizzas for over $58 million, the transaction at that time valued those 10,000 BTC at around $40.

While it wasn’t a Bitcoin purchase in every sense of the word—the recipient of the 10,000 BTC had to pay for the two pizzas with his own fiat money—the event is widely considered as the first ever recorded product purchase using Bitcoin, one that’s celebrated every year as Bitcoin Pizza Day.

Bringing it to online shops

It would take several months before cryptocurrency payments can be made without needing to shell out fiat currency in the process, and one innovation that brought them a step forward was the formation of dedicated cryptocurrency payment processors. Similar to PayPal, these digital applications allowed e-commerce platforms and other online retailers to accept Bitcoin, and subsequently other cryptocurrencies, as a payment option.

One of the earliest payment processors that remain active today is BitPay, an American company founded in 2011. Online shops that signed up with BitPay were able to add Bitcoin to the list of possible payment methods for their customers. A year after it launched, the company was able to partner with over 1,000 online merchants.

Since then, several other cryptocurrency-focused payment processors have popped up, and they all espouse the various benefits of cryptocurrency payments over other traditional methods. These include cryptocurrency’s unparalleled security that makes it much safer against fraud than other digital payment methods; its much cheaper transaction fees due to the use of blockchain technology; and its almost borderless capabilities allowing merchants to accept payments from all over the world.

Catching the big fish

While cryptocurrency was slowly but steadily becoming a legitimate payment method in the digital space, many were still wary—or downright skeptical—of its security and risk. While that wariness and skepticism is still present in several spaces today, a number of notable names have turned those perceptions around by adopting Bitcoin and other virtual currencies into their payment networks.

One of cryptocurrency payments’ first notable wins was WordPress, which began accepting Bitcoin payments for its premium features by the end of 2012, being enabled by BitPay. Two years later, tech giant Microsoft becomes the first company of its caliber to enable cryptocurrency payments within its ecosystem, accepting Bitcoin for digital purchases of Windows apps and Xbox games.

But perhaps one of the biggest wins for the cryptocurrency industry in those years was PayPal’s adoption of cryptocurrencies into its platform, albeit in only certain types of transactions back in 2014. It partnered with three payment processors—BitPay, Coinbase, and GoCoin—to enable Bitcoin as a payment method for transactions involving digital commodities such as video games and music.

Today, it’s not uncommon to see online stores, as well as large companies with an online presence, to accept cryptocurrency as a method of payment. Some have even moved beyond Bitcoin and begun to accept other major cryptocurrencies such as Ethereum and Litecoin.

Bringing it offline

While the number of digital companies accepting cryptocurrency as a mode of payment continues to grow by the day, it remains a challenge to bring primarily physical and brick-and-mortar companies into the cryptocurrency ecosystem in an efficient way. Fortunately, some companies have taken up that challenge, churning out various innovations that make it possible to bring cryptocurrency payments offline.

About the author

Pundi X is a company which uses its own XPOS system, a blockchain-based point-of-sale system that enables brick-and-mortar stores to accept cryptocurrencies as a payment method via instant transactions. Systems like this are making it possible for people like Hanyecz to truly pay for their pizza orders, and many other products and services using cryptocurrency.