The Butterfly Causing the Bitcoin Storm
TL;DR: Bitcoin’s many advantages make it ripe to hit its tipping point and cascade throughout the market, but the barriers to entry are still too high. Bitcoin needs a better user experience to reach its tipping point and finally bury fiat.
In this post we’ve explained why Breez is committed to bitcoin. The short answer is that, as a currency, bitcoin is good for business and good for the world. In this post, we’re going to explain what needs to happen for bitcoin to become a true currency and deliver those rewards.
But first, let us consider what tattoos have in common with bitcoin.
In the 1930s about 6% of Americans had at least one tattoo. According to the Pew Research Center, it took 75 years for that figure to reach one quarter of the population. Only a decade later, the figure doubled, and nearly half of Americans now have at least one tattoo. Tattoos hit their tipping point around 15 years ago. Look:
The Tipping Point
So what’s a tipping point? According to sociologists, a tipping point is:
… a point in time when a group — or a large number of group members — rapidly and dramatically changes its behavior by widely adopting a previously rare practice.
To visualize how this happens, Mark Granovetter (Yes! The same Mark Granovetter who rocked theories of social networks!) developed the super-simple threshold model of collective behavior.
Imagine we’re back in 2002, when tattoos are known but not popular. One of your friends, the YOLO-free spirit, has a bit too much to drink and gets a tattoo of, say, a butterfly on her, oh, ankle. She likes it and doesn’t bother to hide it. Back then, tattoos were still a little taboo, so most of your friends are still averse, but the second most adventurous friend is willing to try something if just one other person has tried it first. He gets a tribal tattoo on his bicep — quite sober — and displays it too. A third friend is willing to try anything at least two other people have already done, a fourth will try anything at least three others have done, and so on.
At some point, so many friends will have had someone pierce their skin with an inked needle a few hundred times per minute that even some of the more inhibited members will give it a try. Twenty (or thirty or forty) percent can’t all be crazy, right? Before you know it, the beach looks like something between a modern art gallery and the craft display at your local kindergarten.
When a collective practice, like getting tattoos, hits its tipping point depends on a few variables, like the costs and benefits involved in the practice, the adventurousness of the victims/customers, etc. The tipping point comes when those variables align to produce a positive feedback loop. The more people wear tattoos, the “cooler” they are, and the cooler they are, the more people get tattoos. It’s like a social practice accruing compound interest.
Bitcoin is where tattoos were in 2002 right before it started to seem that everyone had a dozen of them … just without the pain … and the blood … and the regret.
Why Hasn’t Bitcoin Tipped?
Even though bitcoin arguably has greater advantages and lower risks than subcutaneous ink injections, only about 60% of Americans have heard about it and only about 5% hold any. So if bitcoin is as good as the maximalists say, why hasn’t it tipped?
There are two obstacles standing in the way of bitcoin’s mass acceptance:
Fiat’s First-Mover Advantage
Fiat currency has been around for at least a millennium. The number of people worldwide who know of fiat currency is effectively 100%, and we all have to hold it too. Not surprisingly, the entire social system is built up around it. Our hardware, social routines, and even our language (“penny for your thoughts,” “in for a penny, in for a pound,” “a dime a dozen,” etc.) assumes fiat’s incumbent status.
And to be fair, fiat can do many things. Its incumbency makes it convenient, familiar, and seemingly safe. It works as money.
Politicians and regulators are no exception. They, too, have grown accustomed to fiat and the sense of being able to control it — whether justified or not. Cryptocurrency in general — and bitcoin in particular — is harder to control. Many politicians and regulators don’t understand it and consequently fear it. Those few who do understand it might recognize that it has the potential to transfer power away from bureaucratic regulatory agencies in favor of markets and individuals. Fiat has long served as a security blanket for a select few regulators and lawmakers, and they seem to be afraid of letting it go and growing up.
Bitcoin is better money in many ways. But in order to supplant fiat, it will have to beat fiat at its own game. It will have to be just as functional and just as convenient, but it will also have to provide some benefits that compensate for the time, expense, and perceived risk of switching.
And therein lies the second obstacle:
Bitcoin Needs to Become User-Friendly
For all its advantages, bitcoin comes with some high costs as well. On-chain transactions are slow and expensive, mitigating against smaller transactions. The technical expertise required to use it competently is still much too demanding. Nobody wants to teach their kids about private keys and mnemonics (and have to learn it themselves first!) in order to give them their weekly allowance. Nobody will double the price of their coffee in transaction fees just to have the payment processed within the next half hour.
Tattoos would be even more popular if it weren’t for the permanence, pain, and risk. They would be more like regular cosmetics — similar effects without the downsides. That’s what bitcoin needs with respect to fiat — same utility and convenience without the obstacles.
So there you have it. In order to reach its tipping point and bury fiat, bitcoin has to deliver its many advantages without punishing users. And making life easier for users is exactly where Breez comes in. We want to help Bitcoin evolve to a better currency, and let people use it with no compromises.
How exactly? Stay tuned…
