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It’s 2017, and Bitcoin still hasn’t gone mainstream. When is it finally going to ditch the dollar?
Mass adoption is a frequent topic of discussion among the members of the Bitcoin community. There is virtually no disagreement about the fact that Bitcoin would eventually go mainstream and that it would be a great thing.
Having a larger user base opens up more and better business opportunities, increases the demand for Bitcoins - and, by extension, their price. It also makes it more feasible for business owners to enable Bitcoin payments at their stores and brings other countless benefits to the participants of the market.
However, there are many wildly differing opinions out there when it comes to the questions of how mass adoption can be achieved, what factors are hampering the adoption rates right now and whether Bitcoin can become ‘everyday money’ at all.
Back in late 2013, when the cryptocurrency was experiencing mainstream media coverage for the first time, coupled with unprecedented growth in price, some were expecting Bitcoin to receive global recognition within the next couple of years.
By now it is evident that the prophesied mass adoption has not yet come. But Bitcoin isn’t going to die any time soon either, despite what some of the detractors would have you believe. The question then becomes, when is global recognition realistically possible and what has been preventing it so far?
The factors impacting the rate of Bitcoin adoption can be roughly divided into three groups: technological, utilitarian and psychological. Let’s take a look at what progress has been made in these three directions so far, and what remains to be done.
Technological parameters of a currency are its most basic restricting factors. Bitcoin could have the best use-cases and a perfect reputation (which, spoiler, it doesn’t), but if the numbers simply don’t add up for a global audience, it will never grow beyond the scale of a niche experiment.
The two most popularly discussed metrics here are the total supply of coins and the transaction capacity.
One of the defining features of Bitcoin is a hard-coded limit on the total supply of coins: there will never be more than 21 mln Bitcoins in circulation. In the earlier years, some of the people just learning about the cryptocurrency used to hold a not-uncommon misconception that 21 mln of coins aren’t nearly enough for Bitcoin to serve as a viable currency for a global audience.
What those people failed to take into account is that, like dollars, or any other fiat currency, Bitcoins are divisible. In fact, the lowest indivisible unit in the Bitcoin system is 1 satoshi, which is a one hundred-millionth part of a Bitcoin.
Let’s take a look at the numbers here. The approximate amount of dollars currently in circulation around the globe, including cash, money market funds, savings accounts and CDs, is about $10.5 tln, or, expressed in the lowest indivisible unit, 1.05 quadrillion US cents. That is actually less than the ~1.6 quadrillion of satoshi’s which are currently in circulation.
It’s clear that the actual supply of monetary units of Bitcoin is comparable to that of the largest fiat currency in the world, which should be quite sufficient.
But the transaction capacity is the actual problem.
We have described the problem of Bitcoin’s insufficient capacity in detail in a separate article, but here is the short story. Bitcoin has a bottleneck, which limits the amount of transactions that can be processed each second.
That limit is dictated by the maximum block size - currently, it equals 1 megabyte. Each block is a collection of transactions that have taken place over the last ten minutes or so. Given the one MB limit on the size of blocks, it translates to about three to seven maximum transactions per second.
That capacity is minuscule when compared to existing money systems, such as cash, which, obviously, has an effectively infinite capacity, or, say, Visa/Mastercard that are capable of processing tens of thousands of transactions each second.
What makes this issue worse is the fact that there is no clear solution in sight for it. There are currently two major competing proposals, SegWit and Bitcoin Unlimited, and neither of them has sufficient support to be implemented.
This is a major factor preventing Bitcoin from ever going mainstream. Right now, it cannot technically service a global audience at competitive transaction times and fees, so the scaling problem will have to be fixed sooner or later. Let’s assume it does get fixed, and take a look at the other factors impacting Bitcoin’s adoption worldwide.
The next group of factors is utilitarian. Even if a large audience could use Bitcoin on a daily basis, it doesn’t mean that it should or have to. The actual adoption rate depends on how much utility does Bitcoin offer, compared to the other forms of money.
Evaluating Bitcoin’s utilitarian value as global money is a bit tricky, because the cryptocurrency’s efficiency is not uniform, and varies depending on each particular function it performs.
For example, Bitcoin works great for international remittances. Sending money across the border via conventional methods is a huge pain. First of all, both the sender and the recipient have to have their own bank accounts. It may already present a near-impossible task in some of the underbanked regions, like Northern and Central Africa.
If the counterparties do have access to banking, they will still have to wait for several days and pay a ridiculous $30-$50 fee before the money goes through. Compare that to Bitcoin, whose only requirement to be sent and received is having Internet access. Plus, the fees range from a few cents to just a couple of dollars, depending on the network congestion.
As a payment method, on the other hand, Bitcoin has its flaws. In the vast majority of cases, you cannot spend Bitcoins on something you want directly. There are a few big companies, though, that accept bitcoins in their online shops, such as Microsoft, Overstock, Dell, Tesla, Steam, and others. They are mostly enabled by the intermediary payment processors, such as CoinBase and BitPay.
Various merchant point-of-sales solutions are offered by companies as Coinify, CoinKite and CoinBase. They allow any brick-and-mortar shop to start accepting Bitcoin for their items.
One can find 9000 such shops around the globe, as of the time of writing, maybe even more. But this is still far, far away from being able to just walk into the nearest store and pay for your groceries with Bitcoins.
Again, these numbers don’t even stand in line with, for example, more than 40 mln stores which accept bank cards worldwide. However, merchant acceptance is a gradually increasing figure.
It used to be that you could only transact Bitcoins with like-minded enthusiasts dwelling on niche forums, so being now able to pay Microsoft, or Dell or an occasional brick-and-mortar shop with cryptocurrency is an obvious sign of progress.
It is likely that Bitcoin will simply become gradually more accepted at various places around the globe, as the general public catches up and generates demand for PoS cryptocurrency payments.
In the meanwhile, it is important to make the process of introduction to Bitcoin as simple as possible for the first-time users. The process of buying Bitcoins can be notoriously confusing, so production of simple user guides and development of efficient gateways can go a long way towards increasing Bitcoin’s accessibility.
Arguably the least critical today, but very important in the long run are the psychological factors. They mostly pertain to the public’s perception of Bitcoin and the way the cryptocurrency is being covered on by the mainstream media.
The majority of non-users today have a multitude of established misconceptions about Bitcoin which make them unlikely to try it out. Some of those misconceptions are a result of the media misrepresenting or the people misunderstanding facts, while others are based on outdated information.
The lack of consumer protection, the strong association with black market dealings and cyberterrorism, the high volatility of exchange rates are just some of the ideas deeply entrenched in the mind of the general populace, preventing it from taking more interest in Bitcoin.
Bitcoin is an innovative technology, even revolutionary, in some regards. So its image is deeply impaired by the preconceived notions of what good money should look like. Even the simple fact that you can’t physically hold or see bitcoins is a stopping factor for some.
If cryptocurrency is to ever go mainstream, these misconceptions will have to be targeted and addressed by direct PR campaigns of sorts. It has to be explained, for example, that the lack of consumer protection is a feature resulting from the lack of central authority and as such is a necessary sacrifice.
And, say, that Bitcoin is as much “criminals’ money” as is cash, which can be used for black market deals just as easily. Whereas the volatility, which used to be strong in the early years, is now the lowest it’s ever been, and that has been true for a while now.
It is clear that there are many hurdles left on Bitcoin’s way to mainstream right now and some will be more difficult to overcome than others. Among the most critical issues are the transaction scaling problem, the relatively high knowhow barrier to entry for users and a distorted public image.
However, the prognosis seems to be optimistic. Both the number of daily transactions and the price of Bitcoin have steadily grown to quite substantial levels, despite all the setbacks and crashes on the way. It is clear that there is enough determination and enthusiasm in the Bitcoin community to maintain the current positive dynamics into the future.
Maybe it is more prudent not to count on a single, powerful breakout, especially since such bursts have lead to the no less spectacular crashes in the past. Rather, the continuation of the current steady organic growth could be what Bitcoin needs. It is quite likely that five or 10 years half the world will know what Bitcoin is and we won’t even notice how we got there.
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