As often as Bitcoin is discussed in public forums, much education remains in order to shift the conversation away from the cryptocurrency’s price fluctuations and toward its underlying value.
President Donald Trump’s recent tweets are the latest example of the learning curve that must take place for people to understand how transformative Bitcoin and cryptocurrencies can be.
The simple truth is, Bitcoin will soon become a key pillar of the global financial system. In my view, it’s a matter of when not if.
Perhaps this a bold statement. It’s true that Bitcoin remains volatile. But if you take a step back and observe some of the macro trends taking place, it’s clear that Bitcoin has a proven use case, and it’s only getting stronger.
1. Cash Is Not King
Paper money is quickly becoming outdated. Many businesses are going cashless. PayPal, Venmo, Apple Pay, and Google Wallet (among others) are facilitating the movement toward cash becoming obsolete.
Right now, people are tying their credit and debit cards to these third-party apps to make payments, but is it far-fetched to believe that a digital currency could replace those cards?
The point is that the habits are already in place. Once the general public better understands Bitcoin’s unique value proposition, there will be a tipping point when Bitcoin is used as the de-facto digital currency – particularly as faster transaction processing develops via zero-confirmation transactions, the Lightning Network and other potential solutions.
2. Centralized Digital Currencies Are Too Risky
All cryptocurrencies are digital currencies, but not all digital currencies are considered cryptocurrencies. This is an important distinction.
Facebook’s Libra coin uses cryptography and is a digital currency but it is not a cryptocurrency. Cryptocurrency’s defining feature is that it is not issued by a central authority. It’s decentralized. Libra doesn’t use a blockchain and is centralized, meaning there is a governing body (i.e. the Libra Association) that provides oversight and “facilitates the operation of the Libra Blockchain.” It is also linked to fiat currency in bank accounts, so Libra Foundation could theoretically deny service since they control the bank accounts.
In a world where digital currency is the only real way to pay for goods and services, the government would have a scalable level of control over its citizens. Perhaps you are late to renew your license and the government disables your digital currency. Small transgressions – let alone civil disobedience – would forge efficient tools for severe yet subtle control.
This example is not implausible. Just look at what is happening in China. With Bitcoin, these scenarios could never occur due to the permissionless nature of the technology.
In contrast, Bitcoin is completely decentralized, meaning there is no single entity in charge of its operation. Nobody can shut down Bitcoin or edit the ledger of transactions to manipulate the currency. This is part of the appeal.
3. Economic Mobility and Freedom
In countries that have depreciating currencies – or where hyperinflation exists – storing value becomes near-impossible for lower-income people who remain under pressure to stay impoverished. Imagine a fisherman in a developing country who saves 10% of his income each year, only to find after 10 years that his savings’ real value has been cut in half, or worse.
Bitcoin offers an alternative to citizens who want to opt out of their country’s rigged financial system, or at least partially hedge against the risk of sudden swings in foreign exchange rates. Similarly, persecuted individuals can take their wealth with them away from government interference.
Bitcoin is borderless. There is an entire industry built around money transfers between countries and currencies. For a long time, companies like Western Union charged high fees and added friction to the flow of money. While new companies like TransferWise have sprung up to lower this friction, Bitcoin can create even further competition.
There is also the matter of access. A huge percentage of the world’s population is unbanked, which contributes to the massive income disparity between the “haves” and “have-nots.” Bitcoin is completely permissionless. You do not need anyone’s blessing to own Bitcoin, and this enables user adoption. In a world where there are more than five billion mobile phone users, it’s become easier for people in third-world countries to own Bitcoin than to open a bank account.
4. The Bitcoin Brand
The market cap of Bitcoin is nearly $200 billion. An estimated 9% of Americans own Bitcoin, including 18% of Americans aged 18-34, and the preference rates compared to other asset classes are increasing (see below).
Overall, the momentum of the Bitcoin brand far exceeds any other digital currency.
Why does this matter?
If you consider currency to be a shared belief system, then these indicators are important proof points, and they serve as a harbinger of future use.
5. Network Effects
Combined, the aforementioned use cases create network effects that make Bitcoin even more valuable, which increases usage and accelerates Bitcoin’s growth. It’s a virtuous cycle.
Let the simple thinkers discuss Bitcoin price changes. Those who take a long view of Bitcoin understand how transformative this digital currency is, and we’ve only scratched the surface of its potential.