A report from the Pew Research Center suggests that many more Americans have only heard of cryptocurrencies than have actually bought or invested in them. This November 2021 report found after surveying adults in the U.S. that 86% had heard at least a little about cryptocurrencies, including 24% who said they had heard much about them. Only 16% of survey participants had personally purchased, traded, or otherwise used a cryptocurrency.
Pew further cited that in 2015, only 48% of adults had heard of Bitcoin and fewer than 1% had purchased a cryptocurrency, suggesting an underwhelming crypto uptake during the past seven years. These findings underscore that we’re still several years away from a majority of the U.S. population actually purchasing or using cryptocurrencies.
Before crypto could ever reach the stage of mass adoption and potentially be positioned to serve as a feasible replacement for money, users would first need to fully understand and accept the value of the digital assets. Crypto would also need to come to serve the primary functions that money currently delivers.
What are the three primary functions of money?
It’s worth establishing some baseline concepts and functions regarding money in general. There are some fundamental uses that we expect from money, and they are as follows:
1. Unit of account: this function ensures a comparative measuring stick for different goods or services. This is necessary so that there is widespread acceptance of a uniform standard of value — this way, we “know” what a dollar can purchase.
2. Medium of exchange: an accepted method of payment for settling debts or acquiring goods. This is a critical aspect of money because it embodies communal trust in the asset — a necessary feature of its universal use.
3. Store of value: the inherent ability of a given asset to maintain its payment power in the short and long term. The best “stores of value” can actually increase in worth at a rate that exceeds market inflation.
Could Bitcoin and Ethereum replace the U.S. dollar?
Fundamentally, Bitcoin was created to be a secure, peer-to-peer alternative to government-issued currencies, while Ethereum was created “as a community-built technology behind the cryptocurrency ether (ETH) and thousands of applications you can use today.”
Bitcoin is basically a revolutionary (albeit limited) collection of computer code designed to be an alternative to fiat currency. Ethereum is the software programming bedrock for apps that drives decentralized finance, non-fungible tokens (NFTs), smart contracts — virtually anything a developer can imagine.
To help visualize the difference: if these cryptos were camping gear, Bitcoin would be a solid gold hatchet and Ethereum would be a Swiss Army knife on steroids.
Specific to the aforementioned monetary functions, Bitcoin has evolved into a virtually unmatched asset regarding store of value. It serves as the benchmark unit of account within the crypto sphere by which all other currencies are measured. The Bitcoin currency is often called “digital gold” due to BTC’s many similar attributes to the literal “gold standard” of stored value — gold. Like gold, Bitcoin’s most defining attribute is its scarcity. Only 21 million BTC will ever be produced. The mined supply available each year is cut in half compared to the growing demand, and this reduction of Bitcoin mining every four years ensures continuing appreciation of each coin.
The other side of the Bitcoin
However, BTC’s bare-bones coding standard chokes transaction speeds to a painfully slow five to ten minutes to settle, making BTC a subpar mechanism of exchange. For Bitcoin “maximalists” and other diehard supporters, that doesn’t matter because they can use their BTC as collateral to take loans using other liquid currencies to pay bills or buy things.
The case for ETH
In stark contrast, a primary strength of Ethereum is that its robust network effect continues to expand as more applications launch on it for widely popular use, such as NFTs and decentralized finance. Even supposed “ETH Killers” that could someday supplant Ethereum, such as Cardano and Polkadot, run on the very network they’re supposed to replace.
According to State of the DApps, there are currently more than 2,400 decentralized applications (DApps) built on Ethereum. These DApps support cases that span a broad spectrum of every aspect of life, including health information, identity, marketplaces, finance, data security, insurance, physical property, media, gaming, as well as many others.
The literal coin of this vast realm is Ether. It is not only a better medium of exchange than Bitcoin, it’s becoming a better store of value than it previously was, as it deploys deflationary protocols such as its programmed coin burns under the EIP-1559 upgrade in August 2021.
The final verdict
It’s currently unlikely that either of these top cryptos, Bitcoin or Ethereum, will completely replace the U.S. dollar, but they don’t need to. There are enough unique cases and utility for each of them to co-exist and offer their own kinds of value going forward.
One thing is for sure though — as crypto uptake continues to increase, the need for a proven crypto tax reporting and filing solution such as Cointelli is sure to only become more pressing.
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