Bitcoin is finally starting to reach the mainstream to the point that you can buy Bitcoin through SEC approved investments in addition to currency exchange sites. However, it isn’t quite at the point of being equivalent to cash. Here are 3 things Bitcoin needs to do to become an actual currency.
Stabilize in Value
Volatility is normal with currencies. However, extreme volatility is commonly seen in currencies in distress, such as devaluing the currency in the hope of improving exports and the national economy or being devalued because of punitive trade restrictions. Bitcoin’s rapid rise and periodic wide swings are more akin to a buy and hold investment than a currency. For people to consider it as a currency, they need to be able to buy it and expect to know how much they need to pay for specific things.
Another problem is the issue of cryptocurrency hard forks. When Bitcoin splits, as recently occurred with Bitcoin cash, miners may not be able to find common ground. Now the new currency is worth almost nothing. Bitcoin itself saw a dip in prices because of fear that the July, 2016 fork would create multiple parallel currencies.
For Bitcoin to become a true currency, Bitcoin owners shouldn’t have to hunt for the one coffee shop in the state that accepts it. They need to be able to buy any real estate with Bitcoin or pay their rent with it, not find the few luxury projects that accept cryptocurrency as payment.
One hurdle for Bitcoin is the time it takes for transactions to clear. When people already get mad when someone whips out a check book to pay for groceries, waiting 10 minutes or more for someone to pay for items via Bitcoin will be seen as a major negative by businesses and consumers alike.
Trust is a complex issue, but the simple truth is that people don’t buy what they don’t trust. When Bitcoin is accepted by many more retailers, they’ll see that businesses trust it, so it is safe for them to acquire it and use it. The lack of trust is made worse by the lack of insurance for Bitcoin. If you put half a million U.S. dollars in a bank account and the bank goes bankrupt, the FDIC’s deposit insurance guarantees you’ll get at a quarter million dollars back. And the FDIC has never failed in that mission. Conversely, if you lose $50,000 in Bitcoin due to a hardware failure or software glitch, there is no backup, there is no insurance, and there is no perceived safety.
Another problem is Bitcoin’s association with criminal activity. In this article that was published on Wall Street Hedge on August 5, 2017, Bitcoin wallets linked to Wannacry ransomware were used to collect ransom before being drained. Trust is hard to build, and stories like this erode it.
While Bitcoin is achieving the volume and passing regulatory hurdles necessary to move toward becoming a full currency, it isn’t there yet. If it doesn’t meet the various standards necessary to count as a currency, it remains an investment that could become a bubble instead of a lasting store of value as intended.