This is the first opinion piece in a four-part series that explores the advent of bitcoin as a store of value and the implications of valuing the cryptocurrency in fiat.
In the epic world of google “how to’s” the second most typed “how to” google search for 2017 was: How to buy bitcoin. For a very good reason (I’ll get to it in a second). I’m sure Christmas was a great time to explain what bitcoin is, how it works and the many great advantages of distributed ledgers and forms of organizing for many people around the world. Because spreading knowledge is like a virus, what happened? A huge growth of folks entering the crypto markets, not only pouring money into bitcoin and ethereum, but also into other altcoins. Prices spiked, market value went to the moon and we saw, yet again, records being broken (although at the moment of writing the market is quite bearish). All this commotion got me thinking:
How far have cryptocurrencies come to be used as means of payment?
Let’s look at bitcoin. On January 1st 2017 the price of 1 bitcoin was around USD 947.00 and it increased 1367% closing on the 31st of December 2017 at around USD 12,952.00. In some exchanges, it peaked near USD 20,000.00 in mid-December.
How is the price of bitcoin related to cryptocurrencies’ usage in payments?
Although the number of investors in bitcoin is increasing exponentially, the diversification of uses cases and mainly adoption hasn’t happened yet. Some are able to properly use bitcoin, at a smaller scale of course, but the main problem remains: it’s quite difficult to purchase goods with. Well, in most developed countries that is.
The funny thing is this problem seems to disappear when people just use bitcoin on their daily lives. In Venezuela most chose to use bitcoin despite the current high fees, rather than depending on a hyper-inflated currency, controlled by a corrupt government, incapable of keeping the bolivar stable. This is how the true revolution is happening: while many people use bitcoin as a way to store value, others start to use it as means of payments.
Why is the price a bottleneck?
Most people who start looking at bitcoin do it because of the price. And so they think: “I wish I heard about this bitcoin sooner. I can’t invest now, it’s too expensive”. Not to mention the ultimate bitcoin dilemma: if I spend bitcoin today won’t I be spoiling future earnings?
Let’s properly discuss the obvious elephant in the room.
Yes, the price. We get back to where we started. Bitcoin’s price is what makes people desire to participate and what keeps them away at the same time. It’s a double-edged sword. The price is definitely the very first bottleneck.
The higher it goes, the more people profit, keeping the blockchain alive. But on the other hand, the more scared people are of joining. The reason is incredible: people cannot afford to buy bitcoin. How can they? Bitcoin’s price is insanely high.
The human collective mind is a beautiful thing. It fails to see the most obvious feature of bitcoin (and most cryptocurrencies): it’s dividable, like any other currency. You can buy less than 1 bitcoin. But the number of people who still haven’t truly realized is huge. It’s not their fault entirely; it’s just not that simple to understand when you first hear about bitcoin.
The higher the price the more difficult it gets to make a simple decision: whether or not to enter the market at any given point in time. That is everyone’s true fear. The roller-coaster goes something like:
Will bitcoin’s price suffer the same fate?
Well, as long as people continue to use bitcoin, I don’t think it will. If money is simply a language, there might come a time where we won’t need to “speak” fiat anymore (on a daily basis). At least among our communities, cities or even countries. If that time comes, the price of bitcoin will simply be bitcoin. It seems we’re still very far, far away, but maybe we’re all just suffering from a new depth perception disease, which prevents us from accurately measuring the impact of bitcoin. It’s not the tulip bubble, nor the internet crash. It’s something completely different.
Price is indeed blocking many people from entering the cryptocurrency market. But when people start looking past that, here’s what they will see:
The rule of law, monetary policy makers and fiscal policy makers, must adapt to a distributed way of organizing. Because guess what?
Featured image from Shutterstock.