Should Crypto be Currency?
Bitcoin isn’t money. Can other coins fill that space?
I’d like to tell you about the most expensive pizza ever created.
Many have made a claim to the title. Industry Kitchen, in the Financial District of Manhattan, holds the Guinness World Record for “most expensive pizza commercially available.” Their $2,700 “24K” pizza is…
[M]ade of black squid ink dough, and is topped with white Stilton cheese from the UK, foie gras and truffles from France, Ossetra caviar from the Caspian Sea, Almas caviar, and 24K gold leaves.
The 24K pales in comparison to the Louis XIII pizza, however. For $12,000:
[A] pizza chef, sommelier, and exclusive limited-edition cutlery and plates arrive at your home in Italy to prepare the pie (The crust is made 72 hours in advance.) The pizza is topped with three types of caviar, organic buffalo mozzarella and 7 other cheese varieties, Australian pink salt from the Murray River, prawns from Cilento, mantis shrimp, and lobster.
Over the years other, one-off pizzas have even topped the Louis XIII. And yet, none of them have earned the crown.
The most expensive pizzas of all time were prepared in May, 2010. The two of them probably cost 15 or 20 bucks total, at the time.
The record of how they made history can be found deep in the annals of bitcointalk.org.
At the time of this writing, 10,000 Bitcoin is worth approximately 550 million dollars. You can check out the 225 million dollar pizzas in the image below.
Looks pretty yummy. For half a billion dollars, though, I think I’d pass.
Why Bitcoin Isn’t Money
Bitcoin was supposed to be money. The very first line of Satoshi Nakamoto’s whitepaper lays it out in no uncertain terms: “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution” (emphasis added by this author). Early adopters harbored dreams to one day buy ordinary things, like pizza, with their digital currency. A few scattered retailers entertained the idea. In one infamous case, Mark Karpeles was developing a “Bitcoin Cafe” in Tokyo while his Mt. Gox exchange — the biggest in the world at the time — was being fleeced for everything it had. Had the latter not occurred, the former might have. Crypto holders could’ve stopped by on their lunch breaks, using some of their BTC to buy quiche.
All that is a distant memory now. Today, when Microstrategy buys 90,000 Bitcoin (enough for eighteen pizzas!), it’s not because they’re interested in using it. The same goes for ordinary investors holding smaller amounts. Ironically, it has never been easier to spend Bitcoin: even some big companies accept it, and commercial apps like Cash and PayPal make transacting utterly simple. But finding someone buying pizza with Bitcoin is still exceedingly rare. So while Bitcoin is nominally still money, it is effectively no more than an investment asset — a store-of-value alternative to gold.
Interestingly, the way we got here was through none of the reasons we’d initially guessed. Since the beginning users have argued over the block confirmation time — you can’t buy a morning coffee with Bitcoin if it takes 10 minutes for the payment to go through — and miner fees — you wouldn’t buy a $3 morning coffee if the transaction itself costs another $5. Some of the biggest altcoins today (Bitcoin Cash, Litecoin, Dash, etc) began as Bitcoin forks, aimed at addressing these quality-of-life issues. And while their solutions have, in many cases, proven useful, the real issue with Bitcoin has nothing to do with any of this.
Bitcoin could be instant and free and people still wouldn’t use it as a currency, because to use Bitcoin is itself logically inconsistent. If you buy a volatile asset like Bitcoin, presumably, you believe it’ll be worth more in the future. But if you believe it’ll be worth more in the future, you won’t want to spend it now. Hence, it is never sensible to spend Bitcoin. Its only use cases are trading and hodling. Otherwise you might end up spending 550 million dollars for two medium pizzas.
This same logic applies to all non-stablecoin cryptocurrencies. It’s Gresham’s Law. Any time you have a dollar, and a dollar’s worth of ETH, BCH or LTC, you’re getting rid of that dollar first.
Where Bitcoin is Money
But what if you don’t have a dollar?
Venezuela is a trope in crypto. It is misunderstood and over-cited. But it is, undeniably, the world’s test bed for mainstream adoption (unfortunately for its citizens). Spurred on by hyper-hyperinflation, government adoption of crypto — epitomized by the largely useless “Petro” — and a bevy of other factors, Venezuelans are relying on cryptocurrencies more than any other nation in the world by some measure. Bitcoin, Ethereum, Dash and others are being widely traded on peer-to-peer exchanges, and funneled into the country as remittances. And a sizable chunk of ordinary businesses— gas stations, supermarkets, etc — now accept crypto as a form of payment.
In these ways, Venezuelans are pioneering how crypto can be used not just as an investment, but as currency. Through strife they’re having to figure it out for the rest of us. What might we learn from their example?
First, let’s dispel some potential misinterpretations.
Venezuela is not the rule — if anything, they look more like the exception. Other countries experiencing hyperinflation are not taking to crypto nearly as well, as demonstrated in the table below, which shows P2P Bitcoin trading volume in inflation-heavy countries.
Stable currencies are still preferred over volatile ones. As one would expect, the U.S. dollar dominates as the preferred alternative to the Bolivar.
Make Crypto Currency Again
Despite being a highly unusual case study, there is one very important takeaway from what’s happening in Venezuela. Namely:
Crypto makes for great money, so long as its transactional value outweighs its investment value.
In other words, people have to want to spend their crypto. What might get them to do that?
One way to incentivize crypto spending is complete economic breakdown. Every person who has ever owned Bitcoin in Venezuela would be richer today had they never used it to buy things, but, in lieu of the Bolivar, cryptocurrencies have provided a necessary societal function — acting as actual currencies, keeping the economy going. In any particular instance, then, spending 0.005 BTC for $50 worth of necessities now might outweigh holding onto that coin, and hoping that it grows to $200 in value later.
A less extreme way developers can incentivize crypto spending is to focus on user experience.
That’s not one of Bitcoin’s strengths. It is an unbelievably secure and resilient system, to be sure — practically impossible to cheat, steal or hack, which makes investors feel very safe. However, Bitcoin is also slow and difficult for non-technical people to understand, which turns off potential new adopters.
Some projects put more focus on UX. What these coins cede in decentralization (and all the good that comes with it) they make up for in simplicity and ease of use. Anybody with half a brain can visit their websites and start transacting within minutes. Payments happen instantly, and require no special technical knowledge. Such features go some way to explaining why some of these currencies, even with less name recognition than Bitcoin, have nonetheless found success in Venezuela and elsewhere.
So, in the end, crypto never lost its promise to “allow online payments to be sent directly from one party to another without going through a financial institution.” Rather, we stopped caring that it could do that, and started building coins for their 100x potential. It will take a reversal of priorities — taking small steps, valuing the little things like low barriers to entry and simple user experiences— to buck the trend, and manifest Satoshi’s original vision: a crypto currency.
