Why isn’t Bitcoin Mainstream yet?
It seems like Bitcoin has a long way to go before it’s a mainstream method of payment and a major currency. Disrupting a market and institutions that have been standing for millennia isn’t easy.
Ten years ago, the Bitcoin whitepaper set the scene for what many believed would be the future of online payments — or even the future of money itself. Since then, Bitcoin has evolved into a landscape of thousands of cryptocurrencies and hundreds of billions of dollars.
As the cryptocurrency has grown in popularity and use, its inherent challenges, technical and legal, have become more pronounced. And unless it can overcome these challenges, I believe, Bitcoin will never become a real currency like the dollar or euro.
1. Large Expectations of Bitcoin
The advent of Bitcoin coincided with the financial crisis of 2008, which was triggered by the collapse of several major banks and financial institutions. This was then Bitcoin’s origin created a large expectation. It was obvious that the population cannot trust its financial leaders to keep their money safe. There was a strong sense of anxiety about the economy’s structure.
Using blockchain, Bitcoins underlying tech, a distributed-ledger technology that lets users store and exchange data without going through a third-party service, Bitcoin enabled peer-to-peer payments across the world. With trust in banks and traditional financial institutions at a record low, it was easy to see Bitcoin as a solution to the woes of the world economy but as a form of payment to replace credit cards? There still remain technical hurdles.
2. A Challenging User Experience
Even tech-savvy users found it hard to use Bitcoin, and it took several years’ worth of innovation and a huge spike in the value of the cryptocurrency to draw modest acceptance among the masses.
It takes quite a bit of effort to start using any cryptocurrency. A regular user will need to download a wallet, and some currencies require that they download and sync the wallet to the current blockchain status before they can validate a transaction. And depending on the size of the blockchain, this can take a while. At the same time, users must also know how to handle the public and private cryptographic keys that enable them to send and receive payments on Bitcoin addresses. If they just happen to lose their private keys, or if they get stolen, there’s no way for them to recover their holdings.
Users also must deal with the fact that very few merchants and retailers accept Bitcoin. That’s why they must convert their Bitcoins to fiat currency before they can spend them, which further adds to the friction of the experience. Enthusiasts and Bitcoin believers manage to live off Bitcoin, but for the average user, the technical hurdles are overwhelming.
3. Transactions being Slow and Expensive
Bitcoin can handle seven transactions per second, which is far from thousands of transactions that payment networks such as Visa or Mastercard can process. As Bitcoin has grown in popularity and payment load, it’s increasingly difficult for its network to keep up with the demand, and sometimes it becomes overloaded with unverified transactions. This was true especially during bull-runs, when cryptocurrency prices were at a record high. Users had to wait hours and sometimes days before their payments were processed.
The Bitcoin protocol allows holders to attach fees to their payments to encourage the “miners,” the computers that verify and process transactions, to prioritize their transactions over others. But this has caused a competition between users who want to push their payments ahead of others. Consequently, Bitcoin transaction fees have sometimes climbed higher than $50. Paying a $50 fee for a $10 burger seems reasonable, doesn’t it? However, efforts for Bitcoin Lightning Network is still in the testing phase and has its own challenges. But if it succeeds, it could offer faster payments and lower fees.
4. Bitcoin’s Price Volatility
In 2017, the price of a bitcoin rose from around $1,000 to $20,000, then lost two-thirds of its value in the first half of 2018. These violent fluctuations make Bitcoin unsuitable for day-to-day payments. This is partly why very few merchants and retailers accept it as a method of payment. But that makes Bitcoin attractive for speculators and investors who want to profit off the price changes. We have witnessed that Bitcoin was first envisioned as a digital currency. But lately, with volatility in markets, people start looking at it as a store of value more than an actual currency.
This is logical not only in the case of Bitcoin but with many other cryptocurrencies or so-called coins. If a coin is volatile, there is a little use-case for them in the real-life applications. Speculation in the market is from one side bringing more interested parties at the table, which is good, but it also works against the adoption. Coupled with the poor user experience, the whole sector needs to understand that regular people don’t care about crypto; they care about usability and stability.
On the other side of the spectrum, we must also note, there are “whales,” the 1,000 or so people who hold 40 percent of all bitcoins, can easily manipulate the cryptocurrency’s price.
5. Bitcoin’s vs Legal
Users can create their own Bitcoin wallets and obtain cryptocurrencies without presenting any form of identification or going through government institutions. Governments are understandably reluctant to endorse a currency that is beyond their control, especially since it has become a favourite among cybercriminals, online black markets, and scammers.
Although they can’t control Bitcoin, governments can heavily regulate and control the companies, exchanges, and institutions that want to become engaged in cryptocurrencies and ICOs.
Efforts of Bitcoin ETF’s are becoming more popular. Bitcoin ETFs would remove many of the technical hurdles of investing in Bitcoin and make them more understandable and available to the traditional investment markets.
Legal hurdles add to the frustration and hurdles of investors and merchants who want to offer cryptocurrency payment options to their customers. This, in turn, slows down Bitcoin’s adoption as a mainstream currency.
The Future of Bitcoin
All these challenges don’t mean Bitcoin is doomed to fail. But its adoption might not happen as fast as initially expected. After all, it’s trying to disrupt a market and institutions that have been standing for over a millennia.
After a decade of ups and downs, Bitcoin has seen some tremendous progress and recognition as a resilient currency, regardless of political and economic upheavals. Companies that previously shunned or ignored Bitcoin are becoming interested in the opportunities that cryptocurrencies can provide. Blockchain, Bitcoin’s infrastructure, is also finding its way into many other domains beyond payments, thanks to its immutable and transparent nature, and it is introducing entirely new ways to run organizations and economies. And engineers and developers are busy fixing bugs, adding features and improving the experience.
I believe, as long as people believe in Bitcoin and there is an incentive for miners to keep the network operational, it will exist. That is the real power of bitcoin. What is certain is that crypto is here to stay, because crypto is mostly a computer code, and code gets improved.
My advice, get on-board, experience the thrill, be early to witness the growth and the disruptive nature of Bitcoin. Its exciting.
