Why is Bitcoin so popular?
Many believe that the core idea behind using digital money was conceived right after the infamous financial crisis of 2008 when the banking system collapsed leaving millions without homes and income. It was a horrible period for people who believed in the US financial system and bet everything that the global economy would only continue growing.
The fiat currencies, the fractional banking system, and the debt-based economy were exposed for their weaknesses. Some started thinking about using alternative forms of money and a new way of building a financial system based on trust and transparency.
The answer came in a form of a digital ledger designed by an anonymous developer who used the blockchain technology to build Bitcoin. The tech itself was not something novel. The first working prototype of a blockchain network was designed at the end of the 1980s. However, using it as a form of immutable digital ledger to keep track of finances was a revolutionary idea that soon took the world by storm.
The whole detailed history of Bitcoin is not important. However, we should remember that the core idea behind it is to create a transparent system that cannot be controlled by institutions. On paper, it is a great way to attract libertarians and those fed up with the current financial system. On the other hand, it does have some disadvantages and obstacles to overcome.
Fiat currency VS cryptocurrency
The biggest battle in the financial world is the feud between fiat and crypto. Fiat money is what we traditionally understand when thinking about finances and monetary relations between different participants of the economy. Fiat is usually represented by a physical document or a metal coin and acts as a debt-settling medium.
The issue with fiat is that only governments control how the money is being created and distributed meaning that people do not own any money. They only have physical representations of them and the value of any banknote or a coin can change at any moment depending on the current policies adopted by corresponding governments.
Consider some glaring issues with fiat:
- Governments control the money flow, value, and creation of banknotes and other monetary documents. People do not have any influence on financial policies outside of voting for politicians and hoping that they will change the current policies.
- Institutions create complicated money managing systems such as fractional reserves when a bank must store only 10% of the money deposited by clients and can lend away up to 90% creating excess debt and risks for their financial stability.
- Unlimited and unchecked supply of fiat creates a whole spectrum of issues including hyperinflation, industry bubbles, and more. One of the biggest problems with using fiat is that it is quite hard to avoid oversaturation of the financial system with banknotes.
Can cryptocurrency replace fiat currency?
Digital money is a good way to avoid these issues as long as it stays independent from state control. The media has been quite vocal about the advantages of CBDC or Central Bank Digital Currency. While it sounds like a good idea on paper, the reality is that this concept is not far from what we have right now, but with even more government oversight.
The key attraction of Bitcoin adoption in many developed countries is the independence of the currency from any institutional control. It is still possible for a well-coordinated organization to have a so-called 51% attack on the network, but it will not be feasible if the value of BTC reaches a critical mass.
Will cryptocurrency replace fiat currency? It is possible. However, a more probabilistic scenario is a world where government-controlled money and “free” money coexist and form a new financial system. It is close to impossible to continue supporting a government without using fiat, but people who would like to go “off” the grid will be able to do so.
The question is whether enough businesses will start accepting BTC or another cryptocurrency to warrant the very existence of such a world.
The global cryptocurrency ownership data for 2023 indicates that the world has over 430 million wallets. It does not mean that over 430 million people use or own BTC. It means that the number of wallets that were created since the launch of the blockchain network is now quite impressive. Multiple surveys indicate that only about 100 million people have any crypto exposure. This number includes BTC enthusiasts and people who use ETH exclusively.
The cryptocurrency adoption curve is not as steep as some fans of Bitcoin or Ethereum would like it to be. Nevertheless, it has good momentum, and extrapolating its direction brings hopeful results. Some experts believe that over 50% of all retail online stores and locations will be accepting cryptocurrency by 2030.
What if Bitcoin's mass adoption comes true?
Bitcoin is the biggest cryptocurrency out there with many institutionalized and individual experts claiming it to be too big to fall. After multiple disasters in the industry, the steady course of BTC reminds people that it is here to stay regardless of what haters want us all to believe. However, the Bitcoin adoption rate is still relatively slow.
Before BTC is used for day-to-day activities by the masses, it needs to reach a certain status quo. Here are some important qualities that a valid exchange medium must have:
- It cannot be fully deflationary. If the value of your money keeps going up, you will never want to spend it and simply wait until it reaches an even higher value. This will stop the economy from growing and dramatically reduce the money flow. There must be a golden equilibrium where BTC costs just enough to be valuable yet not too much to discourage people from actually using it.
- Decentralized finance must have better protection mechanisms. One of the biggest obstacles in the way of cryptocurrencies to world domination is the simple issue of safety. Many users lose their money to scammers or due to being technologically illiterate. While elitists may think that everyone should be financially literate and smart, it is not the case and should not be the case with a currency suited for use by the masses.
- Convenience is still a big problem. We have many ways to use Bitcoin quickly and with relative ease. However, it is still miles behind fiat money and currently existing financial services. Bitcoin transaction speed is lacking compared to VISA or MasterCard. Using it is clunky and requires users to memorize complicated codes and use highly specialized devices like Ledger Nano. Getting into Bitcoin is still quite hard.
How Bitcoin can gain mass adoption
Cryptocurrencies still have apparent downsides that many people recognize. Retail stores and individual users do not want to use BTC because it is simply too complicated. On top of that, many nations are still figuring out how to monitor and regulate cryptocurrencies meaning that local businesses struggle to integrate BTC payments into their finances without having issues with taxes.
There are multiple important steps that the whole crypto industry must make toward simplifying the very interaction between a token and a user. Additionally, crypto companies must start cooperating with governments to find a way for Bitcoin and other tokens to be recognized as money by states.
- Work closely with various institutions. Cryptocurrency creators and developers should be focusing on working with government officials to develop appropriate approaches to handling financial transactions involving crypto. Taxing is quite important for any government to work efficiently and there should be a way to conduct business using crypto without hiding your revenues from the government.
- Create safer and faster ways to use crypto. Contemporary cryptocurrency apps for smartphones and laptops are fine and provide the necessary functionality to investors. However, users still find it quite hard to use it quickly. However, any simplification of a transaction process creates vulnerabilities and makes it less safe to pay with crypto. Finding the right balance is hugely important.
- Make sure that investors feel safe buying crypto. We had so many stories about fraudulent companies and individuals that many people are simply afraid to deal with cryptocurrencies and digital assets in general. Having at least some form of centralized authority to protect end users could be a good solution. Right now, we don’t have any unions, organizations, or government bodies that oversee cryptocurrency use.
Which countries have adopted Bitcoin?
There is no point in discussing separate nations when whole continents have been moving forward with using crypto. The whole Sub-Saharan region is using cryptocurrencies, South America (namely, Argentina, Venezuela, Brazil, Mexico, Peru, and many others) have millions of people who use crypto instead of their failing fiat currencies, and many countries in Asia also allow cryptocurrencies to be used freely.
Iran and Russia are two countries that demonstrate that it is possible to use Bitcoin and Ethereum despite international sanctions. While it is not the most appropriate example, it brightly illustrates the advantages of decentralized currencies that cannot be controlled by anyone.
European countries like Switzerland, Belgium, Netherlands, and many others are exploring various ways to incorporate cryptocurrencies into their monetary systems. It is possible that some countries may be interested in rolling out their CBDCs alongside hugely popular decentralized tokens like Bitcoin and Ethereum.
What factors affect Bitcoin adoption?
While we can name a myriad of smaller factors, three significant issues define whether Bitcoin will be used globally in the future.
- International trade. The nature of relationships between strong economies is changing constantly. The current monetary backbone of global trade is the US dollar. It can change, but the alternative must have many qualities that US dollars have. For example, the supply cannot be limited as the growth of the global economy will demand more currency units to continue expanding. Another issue is the foreign exchange market and how it will behave once Bitcoin moves from the category of assets to the category of currencies.
- Governments and their positions. States will have different stances on the issue of using cryptocurrencies. Some countries may allow digital money to be used everywhere without any limitations while others may be either overly controlling or hostile to crypto. A good example is China, a country that banned BTC mining and even some tokens. The Canadian position of limiting their citizens to a crypto equivalent of 35 thousand CAD is also an example that many other nations are looking at fondly.
- The price. What could Bitcoin potentially be worth if it hit world adoption? A wild suggestion that BTC may reach $1 million due to its surge against the weakening US dollar is not outside of the realm of possibility. However, it would mean that even fractions of BTC will be worth so much that people won’t be using it for day-to-day activities. Such a surge in price will further delay global adoption. There must be gradual change and the price of BTC must reach a suitable equilibrium.
Other factors mirror what we have already discussed previously. The technological barrier is still quite steep. Many people who use BTC do not realize that the vast majority of people are not technologically savvy enough to use cryptocurrencies to buy coffee or shop for clothes. It is still a foreign concept to many people.
Safety is another big issue that many DeFi developers are trying to tackle. So far, their efforts were futile and the cryptocurrency domain remains hostile toward newcomers who lack the necessary skills and dedication to thoroughly manage their financial assets. Using crypto is not a fool-proof experience. It must be to be taken seriously by average users.
Another issue is the hoarding of tokens by crypto holders and large institutions. With many people not selling BTC, it is hard to imagine an average person using it to buy something trivial. At the same time, the volatility of many tokens is still a big problem. People won’t accept payment or build their businesses based on a currency that may lose all its value due to an unfortunate tweet from a billionaire having fun.
What is fiat currency in crypto?
The last point that we want to address is the position of fiat currencies in the crypto world. Despite what many people think about BTC and ETH or even stablecoins, the absolute majority of people consider crypto good value storage. Investors and holders of tokens simply think that Bitcoin will continue growing against the US dollar.
They hope to cash out at an opportune moment and use US dollars to buy their new fancy houses and luxury cars. People do not want to use their cryptocurrencies for anything and it is the biggest issue with the whole “Bitcoin adoption” rhetoric.
There is still a long road ahead for cryptocurrencies before they are adopted and used by millions daily. We do not deny that the world will adopt digital currencies at some point. However, this point is not now or in the nearest future. We don’t even have an appropriately developed infrastructure to handle crypto transactions in volumes required for the economy to keep growing.
The main takeaway
The rate of Bitcoin adoption is quite high. We started hearing news about a new exciting digital coin just over a dozen years ago. Now, many e-Commerce projects and retail locations are toying with the idea of accepting Bitcoin in exchange for goods and services. If the crypto community and developers of DeFi products can overcome the obstacles before them, we all will start paying for our coffees with Bitcoin and Ethereum. For now, we are better off holding to our crypto assets instead of spending them in convenience stores.