Bitcoin is valued for Fast and Cheap Payments
This is an oft heard statement that while true, we must consider to what degree. I have shilled for Bitcoin to many people with the focus on cheap and nearly instant payments in the past. It is an excellent selling point for someone who is ignorant of the technological breakthrough and indifferent to the revolutionary political implications. For that reason it was an easy fallback when trying to relate Bitcoin’s importance to the average person.
A few years back I was on vacation and somehow the conversation with our waiter turned into a Bitcoin discussion (shocking). After my pitch I casually told him to download a wallet on his phone and I would show him. He quickly did just that and I sent $5 in bitcoins in just a few seconds. Watching that waiter tilt his head, really seeing that light bulb turn on after the balance updated on his phone, was surreal. His demeanor changed immediately from “that is an interesting thing you are telling me about,” to “you aren’t making this shit up are you?”
Then there was the Uber driver, the bar owner where we held our Meetups, the friends and family members, and the many others over the years. I’ve had this interaction with enough people to lose count, and the pivotal moment in so many of them was the moment when the Bitcoin left my device and showed up on theirs.
However, that moment has failed me on multiple occasions as well. After setting up a small downtown restaurant with Bitpay during closing hours, the owner allowed us to be the first Bitcoin customers. After finishing our meal we bought a few beers at the bar while we got to know each other. Then the payment came up. First, it took a while for us to work out exactly how to receive payment with the app (it had a poor interface), and then after sending the payment, it didn’t show up. My associate and I started feeling awkward and had to reassure the owner and explain how the system worked. After about 5 minutes it finally showed up and then received a confirmation shortly thereafter. In its entirety, the payment took about 15 minutes. We were able to tangent onto other topics and chat amiably while we waited, but all in all, it was obvious that the owner was feeling like he may have just wasted an hour and a half on this “silly Bitcoin thing.”
“It isn’t Bitcoin that can guarantee instant payment , it is the merchant”
This and similar experiences have occurred more often than I would like to admit. While a vast majority of the time everything went smoothly, when it didn’t, I felt like a cheap salesman spouting promises that Bitcoin couldn’t deliver. Keep in mind, this was during a time that Bitcoin had essentially zero backlog and fees never went above $0.05, which were basically voluntary.
Now some of these faults were undoubtedly a result of the software, but some of its limitations are simply a result of how Bitcoin works. The design of Bitcoin works to ensure security, immutability, and censorship resistance. To achieve that, and get Bitcoin’s great guarantee, payments cannot be trusted until they are confirmed, sometimes needing 3 or 4 confirmations. Many merchants will accept payment as soon as a transaction is broadcast, but they knowingly take a risk in doing so. It isn’t Bitcoin that can guarantee instant payment , it is the merchant who can do so in order to simplify the customer experience. They already do this same thing by taking the risks in dealing with credit card fraud and charge fees. This results in Bitcoin being more of a reasonable option for online commerce (where time is less of a factor), but rather weak for in-store payments.
Simply put, bitcoin isn’t and never has been exceptionally good as a payment processor. There is no real way to guarantee the network will propagate your payment quickly, and if fees are kept as near zero as possible, the cost of filling up any blocksize will be trivial.
“My Store Accepts Bitcoin”
We have even seen this reality play out in Merchant adoption over the years, where bitcoin acceptance is almost entirely online. 2013 was the biggest year for merchant adoption in Bitcoin’s short, crazy history. The price spike in the fourth quarter of 2013 officially placed Bitcoin on the map. Tigerdirect, Newegg, Dell, Namecheap, HumbleBundle, Virgin Galactic, Overstock, Cheapair, Stripe, and so many others all were eager to tag along on our trip to the moon.
Interestingly though, this never really “caught on” as I had once imagined it would, and shortly after that small explosion, Bitcoin essentially plateaued in merchant adoption. Albeit, there has still been a very slow but steady growth with online merchants, but some merchants have even stopped accepting it because of few buyers using it (most bitcoiners just hodl) in addition to payment issues. While Bitcoin remains an undoubtedly unique payment innovation, I find it far more often that people who use Bitcoin for payments (like myself) do so because they already like Bitcoin, not because it proves itself as a less confusing, or easier to use payment option. In fact, I have specifically used it in some circumstances despite it being the more annoying payment option, just “cuz bitcoin.”
Frankly, there is nothing wrong with debit cards as a payment option. It is faster, simpler, free for the customer, and has a far superior network. So why do we even need Bitcoin, and why isn’t it dead already?
The vast majority of the infrastructure and value of Bitcoin actually isn’t because it is a good payment option. Its due to something else entirely. And the substantial growth in the price over the past year while fees have increased substantially alongside it is basically proof of this. But I’ll give a better reasoning than a simple correlation…
“Like dinosaur bones to the creationists, Bitcoin will hold many widespread economic fallacies to the fire.”
Bitcoin IS Digital Gold
It’s funny that the media has even naturally come to refer to Bitcoin as “digital gold.” Even they seem to be aware of its dominant use and value proposition… to hodl. Bitcoin was, by every critical component of its design, meant to imitate the security, reliability, and scarcity of gold in a digital form. And consequently, it has been adopted as a safe haven against bad financial policies and economic catastrophes. But this leads us to a very important question… if Bitcoin wants to be digital gold, what makes Gold so valuable in the first place?
Is gold valuable because it is shiny? Maybe because it’s malleable? Or maybe because it’s such a good conductor? None of these characteristics have anything to do with the massive market capitalization of gold. These are, at best, the fine hairs on the back of the elephant. Gold is valuable for its security, immutability, and independence from central institutions. None of these are certain either, there are degrees and circumstances that can make it unreliable. But in spite of this, Gold remains the ultimate real money hedge against government fiat. Why? Because gold has the most independent and most secure monetary policy. The value may fluctuate and there are still new reserves discovered that increase its supply, but in aggregate, no monetary policy has so far been able to maintain the consistency, predictability, and security of gold throughout the history of human civilization.
Bitcoin is a new, fascinating contender in the world of competitive money. It breaks all the common paradigms and gets to the core of the value proposition theory. It stands in the face of multiple dominant schools of Economic thought. Like dinosaur bones to the creationists, Bitcoin will hold many widespread economic fallacies to the fire. If Bitcoin can remain a solid rock of monetary policy. If it remains true that no small group of loud opinions can threaten Bitcoin’s security. If the fundamentals remain unalterable and uncensorable. And if it can be easily verified and secured by anyone in the world… Then Bitcoin’s value wont stop at the moon, it will soar to infinity and beyond.
THIS is the true foundation of Bitcoin’s value. There are thousands of ways to create decentralized and anonymous payment layers on top of Bitcoin’s security model. When you stop to consider what will truly make Bitcoin king of Crypto, never forget that VISA has fast, cheap payments with a market cap of $207 Billion, Gold is expensive, slow and inconvenient with a market cap of over $7 Trillion. Security and decentralization are far more valuable to the market than fast, cheap payments.
Now, that’s not to say Bitcoin must be slow and inconvenient. In fact, just the opposite, it can and will be instant, cheap, and completely private. The problem? Bitcoin is currently none of these things. It is slower and more expensive for consumers than VISA (always has been) and if a Bitcoin address is linked to your identity, not only are your current balances revealed, but also your entire transaction history. Scaling on-chain will only temporarily relieve fee pressure and present no advantage for consumer privacy.
Bitcoin’s true ability to scale to billions of users is largely irrelevant to the blocksize. Capacity and blocksize are not one and the same. A layered system may take longer to implement, but it hardens the security and reliability of the underlying protocol. Stubbornly focusing on blocksize over all else, may make it a contender for Paypal’s $57 billion market. But, without a diehard focus on decentralization, security, and immutability, matching Gold’s $7 Trillion will be just a pipe dream.
A mature Bitcoin is not merely a blockchain, but an entire ecosystem. One that will grow into a tree of transaction types, contracts, payment systems, channels, and countless things yet to be imagined. It has the potential to be an entirely new internet of value exchange. The blocksize will not be a critical factor in that success. It will be entirely dependent on the hardened, unshakable immutability of the underlying Bitcoin system. From that foundation, not only would a trip to the moon be possible, but maybe even far beyond.