Bitcoin was bubbling with hope and promise when it was first launched just over a decade ago.
Satoshi Nakamoto, whoever he is, believed that it would become an alternative monetary system that people would use to complete day-to-day purchases of things like fuel, food, and clothing. A decade later those dreams have not yet been realized.
On the one hand, it is not fair to say that day-to-day adoption should have been accomplished by now. Bitcoin was such new technology at the time that no one really knew how well it would play on the global economic stage. On the other hand, Bitcoin has become something that very few people envisioned way back then.
On the verge of the second decade of the 2000s, Bitcoin is more of an investment and store of value then it is a monetary system. That could change. It does not have to remain what it is today if enough people got on board and started using it to pay their bills. To that end, the rest of this post will be driven by a simple question: what would it take to make you a day-to-day Bitcoin user?
Easy, transparent conversion
For many people, the biggest downside to Bitcoin and other cryptocurrencies is conversion. In simple terms, you cannot just take fiat down to your local bank and exchange it for BTC. It doesn't work that way. Exacerbating the problem is the fact that cryptocurrencies do not utilize minted coins and printed bills. Everything is done digitally. So just to buy BTC, you need a mobile device or a computer with an internet connection.
You have to establish a digital wallet in order to receive BTC for the first time. There are many options for doing this, some being easier than others. But again, this all involves time and at least a basic understanding of how cryptocurrencies work. It all makes for a system that is not necessarily easy or transparent for beginners. Therein lies the problem.
Experienced Bitcoin users have used the system long enough that it is second nature to them. They forget how difficult it was to wrap their brains around cryptocurrency when they first got started. What is easy to them is terribly confusing to the cryptocurrency novice.
Eliminating transaction fees
Maybe easy and transparent conversion isn't an issue for some. Instead, transaction fees may be the biggest hurdle. While it is true that direct BTC transactions can often be conducted with very low or no fees, finding merchants that accept BTC directly is not easy. They are a rare breed.
Merchants do not want to risk their own finances at the feet of Bitcoin volatility. So the vast majority of them only accept Bitcoin payments through a third-party payment processor. In terms of transaction fees, that puts them right back in the same position they were with their credit card processors. Service providers charge a fee for their service; that fee generally gets passed on to the customer.
Likewise, obtaining BTC for the first time will incur a fee. It is that way because exchanges have to make money to stay in business. They charge both buyers and sellers for their services. Conversely, bank-issued debit cards can be used free of fees and charges in most places around the world. So can credit cards. While credit cards incur interest, transactions are generally free of charge.
Improved transaction speed
Speed is a big thing for a lot of day-to-day Bitcoin users. As revolutionary as Bitcoin's technology was back in 2009, it was not perfect. It had an inherent flaw that still exists today: it can take up to 10 minutes to complete a single BTC transaction depending on network traffic. That is not good. A typical credit card transaction is completed in seconds.
As a consumer, maybe speed is an issue for you. If so, there is hope on the horizon. There are several technologies currently under development that, if proven successful, could drastically improve the speed at which Bitcoin transactions take place.
One of those technologies is something known as the Lightning Network. This is a network that acts as a secondary layer for BTC transactions. It is designed to handle all minor transactions of a certain value or less, keeping them off the main Bitcoin network until their combined value reaches a certain threshold.
To illustrate the principle, imagine a London coffee shop that accepts BTC payments. An average BTC transaction is less than £5.00, making it too small to bother the Bitcoin network with. So instead, the transaction is processed on the Lightning Network. That network adds the transaction to its ongoing set of transactions, which are all combined at the end of the month and entered into Bitcoin's ledger as a single transaction.
The Lightning Network is still in the development stage right now. Yet it has already proven workable in concept. It is now being used on a limited basis to see what it is truly capable of. If it delivers as promised, the Lightning Network could very well solve Bitcoin's speed problem.
Less price volatility
Yet another problem that tends to scare people away from Bitcoin is price volatility. If you have been following Bitcoin for any length of time, you know that it went from being worth just pennies per coin to nearly $20,000 in 2017. At the time this post was written, BTC was trading at about $7,200.
Going from zero to $20,000 and back down to $7,200 is quite a swing. But that is over a decade. What about the short term? Well, volatility is still an issue. BTC was trading at about $3,000 at the start of 2019. Providing no drastic price swings occur between now and the end of the year, we are looking at a price anywhere between $,7000 and $8,000. That is still more than double the January price.
All of that is well and good, but the price could swing in the other direction. Today's $7,200 price could be $6,500 tomorrow. BTC could drop every day from now until the end of the year. It could finish the year below the $3,000 mark. See the problem?
Some cryptocurrency experts point to volatility as the single biggest thing inhibiting widespread consumer adoption. They make a good point. How much fiat are consumers willing to tie up in cryptocurrency when they cannot trust that their chosen coin will retain its value tomorrow?
More stablecoin choices
At the current time there does not seem to be any solution to the volatility issue. In order to get around volatility, project developers are turning to the stablecoin. A stablecoin is similar to cryptocurrency in that it is built on blockchain technology and relies on encryption to protect assets and data. So where does it differ? In backing.
Bitcoin isn't backed by anything. It only has value because traders agree to that value. That's why volatility is such a problem. If a lot of people are selling but fewer are buying, the price falls. When people start buying faster than supply can keep up, prices rise.
Stablecoins are not as volatile because their value is backed by something else. Take Facebook's Libra, for example. If it ever gets off the ground, it will be backed by a basket of fiat currencies and government securities. Those currencies and securities will give Libra value beyond the agreement of buyers and sellers.
The U.S. Dollar Coin (USDC) is another example of a stablecoin. It is backed by the U.S. dollar at a one-to-one ratio. As the U.S. dollar goes, so does the value of USDC. As you can see, there is an advantage to using stablecoins as day-to-day payment systems.
The big downside to stablecoins is control. Bitcoin is completely decentralized in every way. Libra will not be. Stablecoins, by their very nature, are difficult to decentralized because another asset is involved. That means stablecoins are capable of being manipulated by central authorities.
Promised regulatory freedom
Perhaps the big impediment for you is fear future regulation. That is a reasonable fear. National governments have finally woken up to the reality of cryptocurrency thanks to Facebook's Libra plans. As such, they are also moving to start regulating cryptocurrency in the very near future. Government regulations could eventually make cryptocurrencies moot.
Of course, there is also the eventual reality of governments issuing their own digital currencies. It is only a matter of time before such currencies are the norm. Once they are, cryptocurrency platforms like Bitcoin will have to give consumers even more reasons to choose their coins over central bank digital currencies. It will be interesting to see how the crypto community responds.
If you are not yet a day-to-day Bitcoin user, do you think you would ever consider becoming one? And if so, what would it take to get you there? There are no right or wrong answers to the questions posed here. Rather, the point is to encourage you to think about cryptocurrency as it now stands. Bitcoin has a lot of potential as an alternative monetary system. It might be worth your while to get involved now - even if only on a small scale.
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