Bitcoin: Changing its Purpose to become a Store of Value

The original intention of Satoshi Nakamoto was to create a peer-to-peer electronic cash system, in other words a way to send money from one party to another without going through a financial institution:

While at the beginning, the idea worked as intended, higher and higher transaction fees on the Bitcoin blockchain made it harder to use the network as a medium of exchange. While transaction fees of well below $1 for the first few years helped Bitcoin to fulfill its purpose and created a lot of positive hype to be the ultimate way of transferring value globally, those fees have skyrocketed due to its wider usage as seen in the chart below:

With costs of over $20 per transaction, it is not worth it to use the Bitcoin blockchain for transferring small amounts of money as opposed to using banks. Especially micro transactions have become very uneconomically to conduct in Bitcoin.

The growing fees are mainly owed to the increasing load that the blockchain has to handle, but scalability has been known to be one of the major obstacles from the beginning. Why doesn't Bitcoin scale, while other blockchains (for example Steem) can handle over one million transactions daily already? So far, Bitcoins scaling efforts have led to forked chains rather than increased throughput. The latest attempt to improve Bitcoin resulted in an unprecedented scaling dilemma and ultimately in Bitcoin Cash, a forked version of Bitcoin. This shows that the Bitcoin developers have a very long way to go in order to successfully implement scaling solutions. While right now Bitcoin Cash may have lower fees due to a block size increase from 1MB to 8MB, increasing the block size isn't a sustainable way to scale the blockchain either.

While I think, the blockchain technology offers a great way to transfer value, I do not believe Bitcoin will end up being the ultimate medium of exchange.

However, Bitcoin is not useless since it is establishing itself as something else: a store of value. Many investors use Bitcoin to store their wealth. ETFs are around the corner and those could be used for that very purpose by institutional investors, pension funds or even governments. Especially if global markets crash, we might see a run on Bitcoins as the US Dollar devalues.

To sum up, it can be said that as of 2018, Bitcoin has changed its purpose from an medium of exchange to a store of value. While this might not have been intended from the very beginning, things do not always turn out to be what they started as. The internet retail giant Amazon started off as an online bookstore after all.

@memekings