Bitcoin is the first and most popular cryptocurrency on everyone’s lips, from investors to technologists. But really, would this asset ever get to replace our regular money?
The truth is that this question has sparked a lot of conversation across many industries, and it’s important to clarify the current reality of things.
Major fintech and automobile companies like PayPal and Tesla now accept Bitcoin and other cryptocurrencies. Interestingly, the trend has entered the gaming and entertainment industries, most notably with the advent of online crypto casinos that allow gamers to access their favorite titles using cryptocurrency.
Follow this article as we discuss Bitcoin as a currency. You’ll discover all you need to know about Bitcoin, its challenges, and what needs to be done to aid an even wider adoption.
Let’s get started!
What Exactly Is Money?
Before we make a case for Bitcoin as money or otherwise, it’s important to know what characteristics a commodity must possess before it can be thought to be money. These are:
A medium of exchange: Money aids the exchange of goods and services without the need for bartering. Before traditional currency came to stay, the major way to exchange goods was to find someone who had what you needed and needed what you had. How exhausting!
A unit of account: It acts as a standard unit for measuring the value of goods and services, allowing us to compare prices and make well-informed purchases easily.
A store of value: Money ought to retain its purchasing power over time so we can save for the future without fear of depreciation.
Is Bitcoin Really Money?
Indeed, Bitcoin has some characteristics of money, such as a medium of exchange and a unit of account.
Although it’s yet to be universal, some people accept this asset for transactions. Also, Bitcoin has been used (and is still being used by some merchants) to indicate the price of some goods and services.
Nonetheless, this cryptocurrency faces some significant hurdles as a medium for storing value — volatility. Let’s examine this issue and other factors affecting the universal acceptance of Bitcoin as a currency.
Challenges to Bitcoin as a Currency
Here are some challenges Bitcoin faces as a viable alternative to our existing traditional currencies.
Volatility: When compared with regular currencies, Bitcoin fluctuates in price at an alarming rate. Imagine buying a new car for a fraction of Bitcoin today, only for it to be valued as several Bitcoins within the next 24 hours. This challenge makes it difficult for businesses to define the price of their goods and services using this asset.
Scalability: The Bitcoin blockchain processes a limited number of seven transactions per second. This value is ridiculously small when compared with traditional payment systems like Visa or Mastercard, which can process tens of thousands of transactions per second.
Limited adoption: While some businesses accept Bitcoins, the majority do not. As such, merchants are hesitant to accept this cryptocurrency because of its low user base. The users, in turn, are reluctant to use Bitcoin because it is not widely accepted.
Security concerns: Another issue is the area of security, with reports in the past of hacked cryptocurrency transactions that led to huge losses for invested parties. Moreover, the irreversibility of Bitcoin transactions makes retrieving these losses cumbersome or entirely impossible.
Environmental impact: Bitcoin mining is the process through which new coins are found. This activity consumes a lot of energy, which raises concerns about sustainability in a world that’s trying to reduce its carbon footprints.
What’s the Way Forward?
Some have compared the hike in Bitcoin’s price over time to the tulip mania of the 1600s when bulbs of flowers were sold at exorbitant prices. Despite these kinds of strong opinions and the obvious setbacks of this digital asset, measures are ongoing to resolve them. Some of them include:
Scaling solutions: Developers are working on scaling the Bitcoin blockchain by introducing a second-layer protocol like the Lightning Network to increase transaction capacity and reduce fees.
Increased regulation: Different governments around the world are looking for ways to regulate cryptocurrencies to encourage trust and more widespread adoption.
Improved security measures: Stronger security protocols and better user education will reduce hacking risks, and people will trust Bitcoin transactions more.
Wider merchant adoption: As more businesses, shopping malls, online and anonymous casinos, and travel agencies keep accepting Bitcoin, the user base would increase, which would ultimately create a positive image for the digital asset
Greener mining: To reduce the environmental impact of Bitcoin mining, renewable energy sources like solar and wind can be used.
Use Cases for Bitcoin Beyond Currency
While the orange coin still has some ways to go before it usurps traditional currencies, it has proved to be plenty useful in the following ways:
Store of value: Because Bitcoin is decentralized and limited in supply, it can function as a valuable hedge against inflation.
Digital gold: Like gold, investors who seek diversification see Bitcoin as an excellent way to protect themselves from economic instability.
Cross-border payment: Compared with the traditional banking system, Bitcoin can be used for cheaper and faster international transactions.
The Possible Future of Bitcoin
The future of Bitcoin remains complex to predict. However, there is the expectation that technological advancements, regulatory decisions, and broader societal adoption will greatly affect how events will play out. Here are some projections that have been made:
Bitcoin might not be a universal currency, but it would remain useful for things like storing wealth and cross-border payment.
Bitcoins and CBDCs will coexist. CBDCs will be useful for regular payments, while Bitcoin will be used for international transactions and as a store of value.
Bitcoin might eventually cross the hurdle of scalability and environmental impact through upgrades and other innovations, ultimately leading to wider adoption.
Is Bitcoin useful? Yes! No doubt. Can we remove all the world’s traditional fiat systems and replace them with Bitcoin? Not quite. Or better still — too soon. Bitcoin shows a lot of promise, but realistically, we still need to keep our fingers crossed on this conversation and let time tell how much of a role Bitcoin will be able to play in the world’s financial systems.