Bitcoin loses significance for Bitrefill

Bitrefill is the go-to place to buy gift cards with cryptocurrencies. It now analyzes what users have been paying with in the past few years. This is exciting for us – and holds a few surprises.

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Being wrong is an essential step towards understanding. Those who never dare to think something wrong will never think something right. Mistakes only become harmful when one becomes entrenched in them.

Most companies cannot afford the luxury of holding onto a convenient misconception. The free market is probably the most efficient mechanism of all time, punishing companies that insist on remaining mistaken.

And that brings us to Bitrefill.

On the Wrong Track

Bitrefill is a platform where people can buy gift cards with cryptocurrencies. It was once one of the companies most committed to Bitcoin maximalism in the market.

For a long time, Bitrefill vehemently resisted adopting other cryptocurrencies, no matter how much users wanted it. It was one of the first to integrate the Lightning Network, even providing a tool called Thor to manage payment channels, and constantly advocated for Lightning on its blog.

However, the company has since realized that despite its enduring love for Bitcoin, it was on the wrong track. Bitrefill employees increasingly criticize Lightning, while the platform has begun to accept other cryptocurrencies.

In a thread on Twitter (now X), Matt Ahlborg, a market researcher for Bitrefill, presents how various payment methods have evolved over the past four and a half years. Rarely has there been such a comprehensive analysis of a commercial crypto platform’s payment behavior from its customers.

And it holds more than just a few surprises.

Ethereum Dominates the Volume

First, Ahlborg shows the absolute volume of all payment methods. It has massively increased compared to January 2020, roughly tenfold. Bitrefill not only kept the momentum from the 2021 rally but also expanded further.

It’s evident that Bitcoin volume has stagnated since January 2021. Even Lightning usage has increased slightly but remains weak. The growth in volume comes exclusively from other coins.

The biggest winner among these is Ethereum (ETH). In January 2020, it accounted for only a fraction of the volume, but today it represents the highest of all payment methods—a surprising fact given that ETH does not typically have the reputation of being a sought-after payment method.

Stablecoins USDC and USDT are also successful. Bitrefill accepts them on-chain on Ethereum, the Polygon side chain, and Tron. Combined, they likely generate even more volume than Ethereum.

Legacy coins like Dash, Dogecoin, and Litecoin also play a role. They remain active but have not grown significantly. Similarly, Binance Pay, a dollar-denominated service from Binance, shows modest activity.

Lightning Without User Awareness

The chart looks somewhat different when considering the number of monthly active users: Here, Bitcoin not only stagnates but declines, while Lightning already has more users than Bitcoin.

The differences between the two charts are easily explained: The average volumes between payment methods differ. They are highest for Ethereum and lowest for Lightning and Binance Pay.

The significant rise in Lightning users, however, has a reason that may disappoint many: It is primarily due to Bitrefill’s cooperation with the Argentine app Belo. Users hold pesos and buy dollar-denominated gift cards directly in the app. The payment is processed in the background through Lightning.

Ahlborg explains that 90 percent of Lightning growth stems from the Belo integration. The users themselves are not directly involved with Lightning. The number of other users grows much more slowly; Ahlborg estimates that „less than half come from wallets where users control their keys.“

„Great Payment Methods“

The significant loss of relevance for Bitcoin at Bitrefill is shown by the relative charts of volume and active users.

Ahlborg attributes this loss primarily to two reasons: First, the hype around Ordinals, BRC-20, and Runes, combined with the sharp price increase, temporarily caused fees to explode. Second, by the end of 2023, Bitrefill had to stop accepting unconfirmed transactions because „miners changed their behavior.“ Both factors made Bitcoin payments significantly less attractive.

Ethereum, on the other hand, is more successful. Already 28 percent of all payments use Ethereum, and they average the highest volume. Ahlborg explains this by the fact that a lot of money is made in the Ethereum ecosystem through tokens, ICOs, NFTs, DeFi, and users then spend this money using the base token, ETH.

The „legacy coins“ Litecoin, Dogecoin, and Dash are also noteworthy. These are old coins that have been in the market for a long time, have „gathered substantial network effects over time,“ and are available on most exchanges and wallets. They serve as „great payment methods that replace other methods, for example, when Bitcoin fees become too expensive.“

Litecoin, in particular, shows a continuous upward trend and has never been used as much as it is today, both in absolute and proportional numbers. However, two other trends are more crucial in the last few years.

„Growing Pains“

The most striking developments among payment options are stablecoins and L2, which for Bitrefill, means the Polygon side chain.

Since Bitrefill introduced the stablecoins USDT (Tether) and USDC (Circle), their volume has significantly increased. They are likely the most used payment method by customers. USDT is more popular than USDC, especially on the Tron blockchain.

However, fees on Tron have massively increased since early 2023, from about 35 cents to $1.50, causing Tron-USDT to lose some shares. The Polygon side chain is growing the fastest, integrated only in spring 2023 but already processing more stablecoin transactions than the Ethereum main chain.

2024 is also the first year that the overall share of Bitrefill users who use stablecoins has stagnated. Ahlborg attributes this to „growing pains,“ where users adapt to changing fees, the popularity of protocols, and regulatory environments.

The Important Development Few Discuss

For Ahlborg, the most exciting insight that generally receives too little attention is that Ethereum, Bitcoin, and Tron operate at their limits. Ahlborg notes that fees consistently exceed a dollar. This leads to fragmentation of payment methods and makes it crucial to work on compatibility and interoperability.

Bitrefill’s charts clearly show one thing: The company could only scale its payment volume since 2021 by integrating additional payment options. The demand from users is there, but it spreads across an increasing number of channels.

Therefore, Bitrefill will likely introduce more payment methods in the future. The focus could primarily be on „Layer-2“ solutions for Bitcoin, Ethereum, and dollar stablecoins, such as rollups like Arbiturm and Optimism, which process ETH, dollar stablecoins, and tokenized bitcoins (WBTC).

Additionally, Bitrefill could promote interoperability, either through its services, analogous to Thor, or by integrating „bridges“ that allow a transaction from one blockchain to another, or even „cross-chain aggregators“ that combine such bridges into one product, like LI.FI.

Strong Regional Differences

As a bonus, Ahlborg touches on the geographic distribution, presenting a world map showing the payment methods as pie charts by continent.

North America and Europe are quite similar: In both, the „Ethereum ecosystem“ (including stablecoins and Polygon) is the strongest, followed by Bitcoin, while Binance Pay, Tron, and legacy coins share the rest. A slightly stronger preference for Bitcoin can be seen in America.

Binance Pay dominates with many users and low volume in Asian, African, and Middle Eastern markets. In Australia, the Ethereum ecosystem is particularly strong, while Bitcoin only plays a niche role in Asia and the Middle East.

The chart in South America, however, is somewhat distorted: The „Bitcoinization“ in El Salvador and the Belo integration make Bitcoin appear stronger than it is. Without them, Binance Pay would also be the strongest payment method in South America.