How Bitcoin Will Achieve Mass Acceptance (Op-Ed)
What will be the impetus of Bitcoin mass acceptance? There are basically three schools of thought on this topic, Merchant Adoption, Third World Unbanked, and Wall Street Investment.
By Dwain Findlay
Note: The following article has been hand picked for being one of the standouts in the Ziftr article contest on the topic of what needs to happen for Bitcoin to enter the mainstream. Happy reading.
All three of these avenues to mass acceptance are compelling reasons for the spread of Bitcoin and all of them will play role in world wide acceptance of the digital currency but I believe that Wall Street investment will be the initial and primary impulsion that moves Bitcoin out of the esoteric world of technology enthusiasts and internet back alleys like Silk Road and into the mainstream of finance and commerce.
Let us first examine merchant adoption. The conventional wisdom says when a significant percentage of merchants start accepting Bitcoin, it will facilitate mass acceptance by consumers. The problem is that wider merchant adoption has not thus far translated into an increase in consumer demand for the currency. This is evident from the recent 30% price decline despite bitcoin acceptance from major online retailers such as Dell, Overstock and even Microsoft. Although merchants have an incentive to accept bitcoin (since they save 2%-3% in processing fees and they don’t have to worry about charge backs), consumers are offered no compelling reason to use bitcoin for purchases instead of a credit card.
But what about bitcoin’s potential in the third world market? Yes, Bitcoin has a huge potential for the over 2.5 billion unbanked people in developing countries. The problem is that most people receiving Bitcoin from relatives in the United States or Europe will need to convert them to their local currency, thus dumping their bitcoins back on the market.
Also they will need access to a Bitcoin ATM or open a bank account in order to convert their bitcoin into the local fiat. Unfortunately it is still far too early in the currency’s evolutionary process to penetrate those markets since there are few if any Bitcoin ATMs or cryptocurrency exchanges in those countries.
Now let’s take a look at the last scenario: Wall Street investment. The emergence of Bitcoin investment trusts could be a game changer for the mass acceptance of the Cryptocurrency. Once investment firms begin purchasing large quantities of the currency, it should ignite a price surge that will take it to new heights. At a recent government auction, one investment firm purchased 40,000 bitcoins but since these coins were not purchased from a cryptocurrency exchange, it had no effect on the price. That will soon change when institutional investors such as insurance companies and retirement funds start to invest. This large influx of capital will drive the price of bitcoin far beyond the US$1,100 high of one year ago.
But how will this lead to mass acceptance? Well, it is the bandwagon effect: when the price goes up dramatically Bitcoin gets a lot of attention from the news media. This is precisely what happened a year ago when the price was at an all time high. Media hype creates awareness and curiosity in the minds of consumers. Soon these people jump on the Bitcoin bandwagon by purchasing some bitcoin.
Retailers begin to notice that a significant number of consumers own bitcoin and worry that if they don’t accept the currency they will be at a competitive disadvantage to the retailers who do. This leads to mass adoption by retailers that are trying to avoid being left behind in the new cryptocurrency revolution. This is how I believe mass acceptance will come about.