What if Everyone Used Bitcoin?
This article takes a look at cryptocurrencies practical use: how feasible would it be for Bitcoin to become a universal currency?
Bitcoin is a currency much like any other: it’s simple to transfer, it has some perceived value, etc. So why is it so rarely used as a “normal” currency? If it were to be adopted into the real world, what would the issues be (assuming the cryptocurrency’s current system)? Take a moment to immerse yourself in a world where everyone is using Bitcoin as the universal currency, and see what happens to the issues that people usually bring up:
Regulations
Using Bitcoin as a global currency assumes away all types of regulations that currently exist on Bitcoin’s use in the financial world, but I want to take a minute to look at why these regulations exist and what they’re doing through the lens of China, who has some of the most stringent regulations on cryptocurrencies.
China has enacted a number of regulations on cryptocurrencies; this could be for many possible reasons, some of which they announce, and some of which they keep to themselves. I highlight two of the big ones:
Avoiding scams. Many coins get their funding from something called an Initial Coin Offering, ICO for short. These are almost the same as a Kickstarter campaign: anyone can fund it, which removes the usual need for an investment from a Venture Capital firm—this can be a lengthy and sometimes ineffective process. This is the side of ICOs that’s promoted, but they certainly come with downsides: many ICOs turn out to be scams. Because almost anyone can be an investor and can send money to a more or less anonymous recipient, that recipient has little that forces them to deliver a product. In China, around 90 percent of ICOs are scams.
Staying in control. This is the reason that China is not as forward about. Cryptocurrencies allow users to exchange money in an unregulated way, as the only record of transactions is on the blockchain, and there is nothing that stops the transactions other than lack of funds. China wants to regulate the flow of money in and out of the country: they cap the outflow of yuan at $50,000 per year, and to stay in control of that, they have to put limitations on how people can obtain Bitcoin.
But like I said, we are going to assume these issues away for now, and focus on what it would look like to use Bitcoin in the real world.
Cybersecurity
This may be the most popular issue to bring up when fighting the adoption of cryptocurrencies. There have been gigantic security breaches within crypto, most notably the MtGox attacks. But when a new technology comes along, people look for perfection, not something that’s better than what they already have (I’m looking at you, self-driving cars).
It’s difficult to find good statistics on how much stolen money is used in the worldwide economy—money can become so untraceable with very few steps, especially if it switches from digital to physical at some point. I’d like to point out that this is actually very different from public cryptocurrencies’ systems in which transactions must be tracked. But we can look at a portion of illegal money: the International Monetary Fund (IMF) estimates that 2 to 5 percent of money used in economies worldwide is laundered. This is a pretty significant amount—as much as $1 in $20 is laundered. When we turn our attention back to Bitcoin, we notice a fairly similar statistic. ButBitcoinWorldwide.com estimates that just under 1 million Bitcoins have been stolen (and some of this has been recovered). With about 17 million Bitcoins currently in existence, that means just under 5.9 percent of all Bitcoins have been stolen. That’s not very far off from our money laundering statistic above.
Price Volatility
Let’s take a quick look at the price of Bitcoin (in USD) over the last week:
Yikes—those changes don’t look the most appealing. I certainly don’t like seeing an almost instantaneous drop of just about $100. Peak to valley in this graph, we see about a 4% drop in Bitcoin’s price. But to get some context for this graph, let’s look at the EUR to USD conversion rate over the past week:
Actually, it looks decently similar. The magnitude of change is a little different (there’s a 2% drop in price peak to valley), and the rises and falls are not quite as significant, but it isn’t all that far off. Investing in Bitcoin, at least now that it’s stable relative to its old self, is a lot like investing in any other currency, and can be a lot more stable than some countries’ currencies.
And anyways, if it’s really everyone using Bitcoin, these issues become superfluous: it’s just a token of trade, and can’t be all that volatile when it has no other currency to be volatile against.
Scalability
Bitcoin is not scalable. As it currently stands, Bitcoin processes about 7 transactions per second on average. This is minuscule compared to a platform like Visa, which handles about 24,000 transactions per second. The article below is a pretty interesting read on the scalability of Bitcoin and other blockchain technologies:
This is the big issue with being able to use Bitcoin in everyday life, and it’s been the biggest point of contention within the cryptocurrency community. So many forks from Bitcoin or other cryptocurrencies have involved speed and scalability. When we look at a newer cryptocurrency like Ripple, we see much higher transactional speed and throughput, and many of the Bitcoin forks show the same qualities. Ripple is able to handle 1,500 transactions per second, beating Bitcoin in a landslide—and that number is almost comparable to Visa’s, but we have to note that Ripple is able to do this because it sacrifices much of the decentralization that other cryptocurrencies have. It seems that scalability would still be a major issue were a fully decentralized coin to become more mainstream.
So is it feasible?
Probably not yet, unless we really want to limit people. The main issue looks to be scalability. With Bitcoin’s relatively small blocks and slow mine times, it’d be hard to get to a point where everyone could use it in their everyday life—and that’s likely the way Bitcoin’s creators want it. Other cryptocurrencies are certainly better candidates to be adopted into the mainstream, but I’d definitely bet against it happening anytime soon.
