Ever since the very beginning, the big question with Bitcoin has been whether it will reach widespread adoption. Its original conception was around the idea of being used as a form of “digital cash”. Recently, it has been trending more towards the use as a form of “digital gold”, which many argue is not a successful outcome.
The Current State of Bitcoin
There are two main uses for money: a store of value and a medium of transfer. A store of value is what we call an asset when we are willing to hold our wealth in that asset class for a long time. For example, USD is treated as a consistent store of value because the value does not change much on a daily basis.
The other quality money has is as a medium of transfer. Value needs to be transmitted from one person to another, and money can do this easily. PayPal solved this aspect of the money problem but was never able to come up with its own store of value.
Right now, Bitcoin is being used as a store of value more than as a medium of transfer, and this is because of the high rates of deflation the coin is experiencing. The more the
Becoming a Medium of Transfer
There have been several news stories recently that give strong signs for the future of Bitcoin. Many investors were originally obsessed with the price movement of Bitcoin because that indicated the short-term returns, but once the cryptocurrency crash of January 2018 occurred, other happenings came into focus.
For example, in
If Bitcoin can’t be used to handle instantaneous transactions, then its utility value will greatly decrease. The implementation of the Lighting Network over the course of 2018 is expected to solve this problem and has already shown
How News Stories Work
Whenever there are stories about Overstock or Microsoft announcing they are willing to accept Bitcoin, people react positively. You will often see Bitcoin spike in value around the time of these announcements, and users will comment that this is another sign of institutional confidence in Bitcoin.
What they tend to ignore is the fact that these companies are mostly looking for free publicity. By accepting Bitcoin, they are guaranteed to get on the front page of a few news websites and be considered forward-thinking. Advertising like that is difficult to buy, and this is the simplest way to get it.
These news stories would gain significance if a large portion of the customer base were actually asking for the chance to use Bitcoin, but this doesn’t seem to be the case. What does help, is situations similar to
More examples are available. When you look at the
These are all signs of good things to come for Bitcoin, but the ideal result is someone like
What Happens if Bitcoin Acceptance Continues to Grow?
What many people don’t really factor in is that it isn’t risky for merchants to accept Bitcoin. They are likely going to liquidate it as soon as they receive it, and in the meantime are likely to charge a slight premium for accepting an alternative currency. It is a financial win but results in the coin constantly receiving sell pressure from these companies rather than having these funds recycled within the Bitcoin ecosystem.
For this reason, you can look at the long-term acceptance of Bitcoin as something that requires far more than a few vendors who are open to accepting BTC instead of USD. The result everyone should be looking for is these vendors being willing to hold BTC on their balance sheet long-term. This would mean that Bitcoin is becoming both a medium of transfer and a store of value.
Bitcoin’s first mainstream bull run has popped recently, which means fewer people are willing to hold the coin and count on deflation delivering strong returns. The future will likely show that for every new vendor willing to accept Bitcoin, there will be a higher profit potential for developers and more of them will enter the field. In this way, the industry may continue to compound and improve as time goes on.