Will Bitcoin Become the World's Currency, Or Has This Idea Already Failed?
16th April 2021
Bitcoin costs over $60,000, but we still can't pay it off in a cafe. Does this mean that the idea of a "new world currency" connected with Bitcoin has collapsed, and BTC will always be only a digital asset for investment? .. Some crypto enthusiasts believe that this is not the case, and the era of cryptographic money will come. GetBlock analyzes backgrounds, opinions, pros, and cons.
Background: the concept of Satoshi Nakamoto
Bitcoin was developed as a "non-trust" payment system. In his article "Bitcoin: A Peer-to-Peer Electronic Cash System" (2008) Satoshi Nakamoto substantiated the demand for a new world currency: there were no direct electronic transactions in those days, and cryptocurrency was intended to close the gap. Nakamoto argued that Bitcoin would allow any two participants to transfer currency without an intermediary: faster, more convenient, and cheaper. The idea has generated deep skepticism.
Over the next few years, Bitcoin turned from a funny thing for geeks into a valuable asset, and mining became a profitable business. All this time, traditional financial systems have also been developing, but they have not surpassed Bitcoin in terms of the speed and cheapness of transactions. Therefore, the idea of a new world currency lived on and combined with other ideas, including social and political ones.
The cryptanarchism movement began much earlier than Bitcoin. It became a reason for the development of the first cryptocurrency: Satoshi Nakamoto knew this ideology and shared it.
Cryptoanarchists oppose mass surveillance activities and state control over computer networks. They also fight against censorship of the internet. Cryptoanarchists believe that everyone has the right to anonymity, and the free flow of information is good for society: it is a way to fight corruption and other government abuses.
The idea of cryptoanarchism originated in the 1940s, during the rise of interest in cryptography. In the 1970s, when the first prototypes of the Internet were developed, cryptanarchist movement raised in the United States. The main ideologist is considered to be an American cryptographer, a former leading researcher at Intel Timothy May, the author of “The Crypto Anarchist Manifesto” (1988).
But with Bitcoin, the movement moved up and attracted thousands of new supporters. Cryptoanarchists are true believers of a global digital currency; they consider BTC as a viable alternative to banking systems, and the basis of the new economy. A local attempt can be considered the Paralelní Polis project in Prague: this is a center of culture and art, where there is a cafe with payment exclusively in cryptocurrency.
Other adepts of the "common currency" theory
Most cryptanarchists are anonymous. But there are also some public persons who believe in the Bitcoin capacity as a common currency.
The most famous is Vitalik Buterin, the founder of Ethereum. In 2020, he entered into a public discussion with Zack Voell (Blockstream) and argued with his statement that Bitcoin "was, is, and always shall be digital gold". According to Buterin, Bitcoin is a payment system, and it was originally designed for this purpose.
The well-known venture capitalist Tim Draper once said that in the future the entire global economy will make a turn towards cryptocurrencies and that Bitcoin will be at the head of the changes: these words were quoted by Forbes in November 2018.
Co-founder of Morgan Creek Digital Anthony Pompliano in one of his interviews also stated that Bitcoin can become the world's main currency.
Why are traditional currencies inferior to Bitcoin?
The adepts of the theory of a single world cryptocurrency have arguments against the modern banking system:
- "Printing press". Governments increase the emission of money, which causes inflation.
- High transaction costs. Transfers between countries are still expensive, especially with currency exchange fees.
- One-sided control. Traditional financial systems are not transparent to citizens, but banks and authorities always know how much money a person has in their account. At any time, the account can be blocked.
Bitcoins are devoid of these disadvantages. They cannot be "printed", and therefore they are not inflationary; on the contrary, their value is increasing because of mining limits. Transfers are made instantly and without commissions. The number of coins on all wallets is transparent, but all the wallets are anonymous. And there is no "ruling power" capable of blocking wallets or confiscating funds from them without permission of the owner.
For these reasons, cryptocurrency has long been outside the legal field, and in some countries, it is still illegal to mine (or even own) it. But the main reason we still don't pay with Bitcoin in shopping malls is not connected with regulators.
Vulnerabilities of the "world currency" theory
In addition to legislative challenges, there are also problems in the Bitcoin ecosystem.
- Volatility. The Bitcoin rate can change up to 10% per day. The fluctuations are influenced by large market players, news, and various events on the network: hardforks, halvings.
- Controversial profitability. Unlike central bank currencies, Bitcoin has no interest rate. Therefore, its profitability is difficult to assess.
- Technical issues. Mining requires an immense amount of energy. If Bitcoin is accepted all over the world, the network will be overloaded, and payments will be made for hours. This is the minus of the proof-of-work consensus algorithm of BTC. But more progressive algorithms are also slower than usual payment systems: Visa and Mastercard.
These factors are holding back the use of Bitcoin as money. But they are not that important for investors. Therefore, in recent years, Bitcoin is often referred to as digital gold and a replacement for the dollar. Perhaps Bitcoin will not become the one money for the whole world, as its creator assumed. But it is increasingly strengthening its position as the world's reserve currency.