Tuesday, December 19, 2017

Is Bitcoin A Failure As A Currency?

As we approach the end of the year, one thing about cryptocurrency has become abundantly clear: bitcoin means business as an asset. The leading cryptocurrency has risen to over 20 times its value at the outset of 2017, and you can find plenty of investors and analysts who are bullish about its 2018 performance as well (though many also believe it’s in something of a bubble). Even as bitcoin’s value skyrockets, however, it’s become interesting to ask the question: is bitcoin a failure as a currency?

Many who have long advocated for bitcoin would immediately say no. Bitcoin can be used as currency essentially wherever a merchant decides that it’s appropriate, and the list of places you can use bitcoin has grown fairly steadily. Particularly online, there are plenty of places to spend bitcoin, and in some industries we’re even seeing a trend toward paying contracted employees in bitcoin or other cryptocurrencies. It’s clear that bitcoin can function as a currency, and does in many cases. However, even as that list of acceptable use opportunities has grown, it hasn’t grown as rapidly as bitcoin proponents would’ve hoped.

The assumption might be that this is due to regulation, but that might not necessarily be the case. Bitcoin regulations vary from one country to another due to the decentralized nature of the currency, and there are certainly a few countries that have done more to restrict usage than others. Broadly speaking however, only a few countries have actually banned cryptocurrency, and if there’s a global trend it’s probably toward looser government stances. Thus, if anything, regulations (or lack thereof) should be encouraging bitcoin’s use as a currency.

What really seems to be responsible is actually simpler: bitcoin has evolved into an asset. This is something many people saw coming a year or two ago, when the word “commodity” started being used to describe cryptocurrency. Some took to describing bitcoin as “digital gold,” and while there are numerous problems with that characterization, it at least makes sense in the currency versus commodity question. Gold has value, but it’s not as if we would ever dream us walking into a store and using it to purchase goods; it could be that this is where we’re heading with bitcoin as well.

It probably doesn’t help that bitcoin’s value also makes it mathematically intimidating for users. At this point, a ticket at the movies might cost about 0.00045 BTC; a combo at a fast food restaurant might be about 0.00031. Furthermore, we don’t have precise terminology for these increments (though some terms like “bits” and “satoshis” are emerging among bitcoin enthusiasts). It’s simply inconvenient to think about the monetary terms involved in an everyday transaction.

To say that bitcoin is “failing” as a currency is probably dramatic at this stage – but it’s certainly trending in another direction. The real question, and the one we can’t answer yet, is what this actually means for it moving forward. There’s an argument to be made (and people are starting to make it) that if bitcoin doesn’t become a useful currency, it could become useless.

Time will tell.


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