Bitcoin – A Roadmap to the Mainstream
March 30, 2013 2 Comments
In recent months Bitcoin has taken significant steps towards mainstream adoption. The high profile organizations of Reddit, WordPress, and Expensify all made headlines by choosing to accept the decentralized currency as payment. BitPay, Bitcoin’s leading payment processor, now serves over 4,000 merchants and has processed more than $2,000,000 in payments during March alone. Few would argue that the progress made by the Bitcoin community in the last 6 months has been impressive.
But ask your parents, ask your boss, or ask anyone on the street if they know about Bitcoin and the odds are that the answer will come back “no”. The truth is, for all the progress that has been made, Bitcoin still operates on the fringe, used by those who appreciate its benefits, but still waiting to be celebrated by the masses.
If Bitcoin is to be “celebrated by the masses” I believe there are three main hurdles that need to be overcome.
Bitcoin’s price volatility is currently the biggest challenge facing Bitcoin’s mainstream adoption. The possibility of an enormous decrease in Bitcoin’s exchange rate presents a significant risk to merchants that choose to accept Bitcoin as payment. Likewise many potential users of the currency are likely to be discouraged for similar reasons. Until the benefits of Bitcoin are deemed by the majority to outweigh its risks, Bitcoin’s user base is doomed to remain on the fringe.
There are however a few things that can be done to decrease Bitcoin’s price volatility. Larger trade volumes and more effective exchanges would help to decrease short term swings caused by a lack of liquidity. The trading of Bitcoin options and futures contracts would also allow many to hedge their positions, decreasing their exposure to large price variations. While both these things will help, the most important factor in increasing Bitcoin’s price stability will be time. The Bitcoin economy is young, and because of that changes occur very rapidly. Over time the turmoil surrounding the economy will slow, and Bitcoin’s exchange rate will tend to stabilize The key here is allowing stakeholders to deal with the risk while it exists, and at the same time encouraging them to adopt a long term focus.
I personally do not believe that Bitcoin will ever surpass fiat currency in terms of its acceptability for everyday purchases. I also do not see this as a problem. There will be times when it makes more sense to use Bitcoin, and times when it makes more sense to use fiat currency. They can each serve their useful purpose. This means that Bitcoin’s success comes to depend on its ability to interact seamlessly with the existing economy. This in turn boils down to the need to exchange fiat funds for Bitcoin, and vice versa. Currently however, there is significant uncertainty surrounding how these exchanges will happen in the future. Governments all around the world have yet to establish clear regulations concerning transactions from Bitcoin to fiat currency. Not surprisingly, these transactions raise plenty of issues surrounding money laundering and tax evasion that have yet to find a long term solution.
In my opinion there are two paths Bitcoin can take. In the first path governments establish regulations and guidelines effecting currency exchanges, allowing them to operate as long as they comply with certain rules (i.e. reporting transactions greater than $10,000). This approach is likely to benefit the Bitcoin economy by allowing more users to feel comfortable using the currency, however it comes at the price of decreased freedom and independence from central authorities. The other path, the one I personally tend to favor, is the establishment of a decentralized exchange network that by its nature is immune to control by central authorities. A burgeoning development known as Ripple, although in its early stages of development, has the potential to become this type of network. Another option is the establishment of many online exchanges that gain invulnerability by their shear numbers.
Acceptability, as measured by the number of things you can buy with Bitcoin, has always been a restraint to its mainstream adoption. Sure Reddit and WordPress accept it as payment, and the number of merchants who accept it is growing everyday, but Bitcoin’s options are still very limited. The average person is just more likely to make most of their online payments using PayPal than they are to use Bitcoin, solely because PayPal is more widely accepted.
This problem can change very quickly. As more merchants begin to accept Bitcoin, more people are likely to become aware of its benefits. Eventually, granted that the two points mentioned above have been addressed with relative success, a tipping point will be reached. After that Bitcoin will have little trouble attracting new merchants because they can easily see from others that it is a viable payment option. When this tipping point will occur is difficult to say, but if the interest in Bitcoin keeps increasing like it has in the last few months, I personally believe we are less than 2 years away.
If you had asked anyone as little as 12 months ago whether they thought that Bitcoin could achieve mainstream adoption you would have probably received a “no”, or at best a “maybe”. Since then Bitcoin has made incredible progress, and seems as poised as ever to revolutionize the way we transfer value online. Exactly what the future holds for Bitcoin is highly uncertain, although if the challenges of price stability, economic integration and acceptability can be overcome, I believe that the future is very bright for the world’s first decentralized currency.
- Trace Mayer & Kenton Ralph Toews – Bitcoin: Is It Here To Stay? (financialsurvivalnetwork.com)
- Chris Duane – BitCoin: Is It Real Or Is It Fiat? (financialsurvivalnetwork.com)
- Getting started with BitCoin and securing your financial future (harounkola.com)