The launch of Bakkt is 2019’s biggest story in the cryptocurrency world, and the firm’s partnership with Starbucks has attracted the most attention. Let’s take a closer look at some of the details of this collaboration, to see exactly what the impact of the world’s biggest coffee chain getting involved with crypto could be.
Our vision is to bring digital assets into the mainstream by enabling efficient transactions between consumers and merchants
— Bakkt (@Bakkt) January 15, 2019
-You won’t be able to (directly) pay for coffee with crypto…
After an initial surge of excitement when the Bakkt partnership was announced back in 2017, Starbucks stepped in to make an important clarification. Although the company was taking steps to enable Bitcoin (BTC) as a payment method, it wouldn’t be handling any crypto directly.
What Starbucks will be doing is contributing to the development of software tools that will allow customers to easily exchange their BTC for fiat currency, in order to buy coffee and other products. This functionality could well be integrated into its existing mobile app, or it could be a standalone system – either way, it will make the process of paying with BTC at Starbucks significantly easier.
-but it could still be huge for adoption
Although Starbucks won’t actually be holding any BTC at any stage, the new system will nevertheless bring about a major new use case for crypto, as well as bringing more widespread attention to the crypto space from everyday consumers.
So, just how big is Starbucks?
As of 2018, there were 29,324 Starbucks stores worldwide, with 14,400 of these located in the U.S. The company had plans to open around 2100 new stores globally in 2019, bringing the total number up to around 31,400. Starbucks’ total revenue for the 2018 fiscal year was an impressive $24.7 billion, up from $22.4 billion the previous year. That amounts to around $67 million per day.
Obviously, the third-largest fast food chain in the world does more than just sell coffee and other hot drinks, but these account for a significant portion of Starbucks’ sales, and it’s interesting to see how the figures break down. The company gets through between 3 and 4 billion cups in a year, or around 8 million per day. If we assume an average price of around $2.50 for a cup, this amounts to almost $10 billion in a year – just under half of the company’s total revenue.
What about Bitcoin?
Although crypto and coffee are two entirely different markets, it’s worth comparing the figures for Bitcoin with Starbucks, to get some idea of scale. While Starbucks saw an increase in revenue of over $2 billion from 2017 to 2018, Bitcoin moved in the opposite direction. The total market cap of Bitcoin is currently around $68.8 billion (March 14, 2019), down from $276.6 billion at the start of 2018.
The most recent data suggests that there are around 32 million Bitcoin addresses worldwide. Speaking very roughly, this means that the average Bitcoin wallet has just over 0.5 BTC, worth around $2000. However, these figures are likely be skewed slightly by those ‘whales’ who have particularly large BTC holdings.
We could assume that anyone holding Bitcoin worth hundreds of thousands of dollars is probably a HODLer, or else a speculator who sees their BTC as an investment, as opposed to someone looking to spend it on a regular basis. Indeed, recent data suggests that just 11 percent of Bitcoin users, around 2.3 million people, use it to make payments.
Will Starbucks customers want to start using Bitcoin?
If we assume that a significant proportion of the 2.3 million regular Bitcoin users also regularly frequent their local Starbucks, the Bakkt launch could immediately lead to hundreds of thousands of BTC-for-coffee trades being facilitated on a daily basis, via fiat currency and Starbucks’ new software tools. Furthermore, the possibility of using BTC in Starbucks could also lead to a major increase in the overall number of Bitcoin users.
Although most of its transactions are still made over the counter in the traditional way, by cash or card, Starbucks isn’t new to digital payment systems. Due to early adoption and a loyal customer base, its mobile payments app is the most popular of its kind, outperforming Google Pay and Apple Pay. An estimated 25.6 million people in the U.S. alone are predicted to use their Starbucks app and accompanying card to make payments in 2019, and Starbucks had 40 percent of the total payment app market share in 2018.
You will find more infographics at Statista
Figures from 2016 showed that over $1 billion was loaded onto Starbucks’ mobile payment system, giving it bigger USD reserves than some major financial institutions. If customers are already accustomed to keeping their funds stored in a digital system for ease of use, then this behaviour could easily facilitate demand for BTC, especially as awareness grows.
One drawback for Starbucks customers could be the status of Bitcoin as an asset, and its constant price volatility. A crypto analyst recently pointed out that fluctuations in the BTC price could see users making small gains on every Starbucks purchase they make, which would then have to be individually accounted for when filling out a tax return.
What will happen to the Bitcoin network?
Scalability has been a major talking point in the crypto community for years now, and as the leading network as well as the oldest, Bitcoin is affected by increasing traffic more than others. SegWit technology and the Lightning Network have gone some way to resolving the issue, but not everyone is convinced that the blockchain will be able to continue handling transactions efficiently.
Recent data suggests that around 12 percent of Starbucks payments are made via its app and card system in the U.S, which is the only place that BTC payments will initially be available. If we assume that the Bakkt partnership is huge for adoption, and a significant proportion of these e-payment customers invest in Bitcoin and convert it into USD whenever they want to buy a coffee, this could seriously affect how Bitcoin operates.
Regular use of Bitcoin in Starbucks could lead to the BTC network having to deal with more than double the number of transactions it currently processes in a day. This could lead to transaction confirmation times of over 20 minutes, returning us to a level not seen since the height of the 2017 bull run.
(Daily Bitcoin transactions)
Ideally, the new BTC integration for Starbucks will make use of the Lightning Network, in order to keep these payments off-chain. It seems unlikely that Bakkt or Starbucks customers would be willing to pay the high transaction fees required to get more mining power on the network and process the transactions in a reasonable time.
SCOOP: @Starbucks received significant equity in @Bakkt in return for commitment to allow bitcoin payments in store in 2019 [GENESIS] via @i_woodford https://t.co/OBZE1vOzeo pic.twitter.com/rPqXXZVNlU
— Mike Dudas (@mdudas) March 4, 2019
However, Starbucks did receive a significant amount of equity in Bakkt as part of the partnership. Was this a trade-off for a contribution towards the health of the Bitcoin infrastructure? It could be that the company just saw this deal as a major marketing opportunity (not to mention tax avoidance scheme), in which case we could be about to see some serious congestion on the BTC network.
A lot of people in the crypto community will see the potentially slow transaction times as a necessary sacrifice, though. One of the world’s top retailers will be promoting Bitcoin to millions of new people, and if the integration is successful, it will set an example for adoption to other major merchants worldwide.
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