Has Bitcoin Found the Sweet Spot for Guaranteed Retail Adoption?

Back in the 1990s I was directly involved with driving the adoption of the internet. Since then, the internet has developed into something very different from how we imagined it. It’s also considerably better than we thought it would be.

While we dreamed of the giddy possibilities of a face-to-face video phone call or downloading a piece of software on demand, we never, ever imagined web 3.0 apps like Uber or Airbnb. They were so far off the scale, they didn’t even register.

Bitcoin’s journey (and ours with it) is likely to be similar in the end, and some of the steps on that journey may not be linear, or even obvious.

Like most people, I found the fact that you could use Bitcoin to send money across any borders at any time without involving any banks or other organizations in just a few minutes (or worst case, hours) for a few dollars, simply astounding. This has never been possible before at any point in human history.

And it’s not only a question of convenience and “people power,” because as many as 1.7 billion people have no banking facilities at all, according to The World Bank Annual Report 2020, and Bitcoin — genuinely — has the power to fix this imbalance for good. What an amazing thought. It’s one I still find genuinely exciting.

But in developed countries where we are spoiled for choice in terms of financial services, we hear people moaning about the fees of sending bitcoin all the time and suggestions of so-called new and better alternatives such as [insert name of your favorite cryptocurrency which is “obviously” better than Bitcoin here].

As new side and off-chain payment systems like the Lightning Network continue their development, I, like many others, considered this an essential factor for Bitcoin’s widespread use going forward.

“When the Lighting Network goes fully live, it will be much better and global adoption will happen” we say.

But, in light of how much the world and attitudes to the current financial system have changed — and so quickly — is that actually still the case?
Bitcoin is more unique that it first appears

Long have we argued over whether Bitcoin is a store of value or a currency, and both points of view are technically correct in my view.

It is both. But it is also more, much more.

Bitcoin is not only these things, it is also its own payment system.

It is the first time in human history that these important aspects have been combined, and it puts us in entirely uncharted territory. It is inevitable that we will shape both our thinking and application of it as we continue to build and learn.

Add in extreme scarcity and removing our imperfect human selves from the system completely, and we have something that will inevitably adapt in use as we do.

As the actions of institutions — including insurance companies, funds and publicly listed corporates — make the case against store of value increasingly difficult to argue, the next logical step will be for nation states to treat Bitcoin in the same way.

Will it be a rogue nation such as Venezuela or Iran (both of which have been making noises along those lines recently) or perhaps a neutral, finance-heavy economy such as Switzerland? It now seems more likely that it is a question of “who will be first?” rather than “will it happen?”

And yet, since the same asset can also be used just as easily as a form of currency, does that devalue that purpose or reinforce it? Could it still be both? Should it be? Does it matter? What does that even look like?
Fiat — Bitcoin’s new friend

Bitcoin’s famous scalability problem doesn’t apply when used as store of value on any institutional level and is, in fact, entirely irrelevant. It is a thousand times more efficient to move than gold — the classic treasury asset — and almost infinitely cheaper and quicker.

Bitcoin works perfectly in this application and, in fact, it would be hard to design anything better if we tried to do it again today.

The issue has always been about retail spending, or what I call the “cold coffee” problem. That is, if you go into a coffee shop and buy a nice latte, it’ll be cold by the time your transaction confirms and you can take it away. But if Bitcoin’s own payment rail can’t work well enough in that context, what do we do?

Its now possible that the solution may ultimately not be what we expected. This year has seen a blurring of the lines between our old financial system and the new crypto-based one, creating a working integration model that far exceeded any original expectations we may have had even as recently as 2019.

Whereas solutions designed to make Bitcoin useable in its native format such as BitPay and the Lightning Network seemed to be the way forward at one time, they have suddenly become less important.

For example, in the case of merchants receiving bitcoin for a transaction, it’s easier for them to not have to work out how to deal with it at point of sale and instead use a real-time fiat conversion system that sits inside standard accounting practices.

For the customer, they still get to use their bitcoin to make that transaction, and the equivalent amount is deducted from their wallet using crypto debit cards or their chosen online payment system.

At the same time, the existing global payment rails, such as Visa, Mastercard and PayPal, get to take a cut for providing their services. Even better, these are systems that most consumers already use everyday and do so with confidence.

Not only does this solution allow the fiat-based and crypto systems to seamlessly coexist, they can even complement each other and thrive. It’s also irrelevant to Bitcoin if fiat devalues as much as economists suspect it might, since a liquid, but truly scarce asset will almost always provide a real time “true” price on conversion.

The fact that you can buy and sell services in your local currency but at the level now set by the market in terms of exchange is both an astonishing and liberating thought, something that just wasn’t possible a few years ago.

You could, for example, buy bitcoin through PayPal, let it sit in your account and just spend little bits as it appreciates in value. Well, assuming the supply an demand curves play out that way of course.

And you can do this right now.
Passing phase or final destination?

The purists won’t like it, the libertarians will feel slightly cheated and the maximalists won't accept it, but I firmly believe this is a good thing.

It allows Bitcoin’s purchasing power to normalize and become part of everyday transactions through familiar channels, while, at the same time, the store of value argument is being proven in the background.

These systems really can — and should — coexist, and it still levels the playing field across the globe. After all, any individual can buy and hold Bitcoin at any point, send it to anyone, and use its value to their advantage back in the traditional financial world with real time conversion. What’s not to like?

The reality is that the growth in debit card services and the introduction of the PayPal bitcoin option mean that this is already happening. In fact, the use of those services is growing everyday and may well now exceed the speed of growth of Lightning adoption, thereby winning the race for effective day-to-day use (if there even is one) in the meantime.

It could even be that Lightning ends up being no more than a faster way to do exactly what we did before — send money across borders without interference from third parties — rather than being a primary payment rail in, for example, a retail setting.

But who knows? It’ll continue to evolve as we integrate the old system and the new, a process that is now all but unstoppable but is also unknown in its final form.

Perhaps this is just a point we pass on the way to a Bitcoin standard, or perhaps it’s as far as we go and this is the where the Bitcoin train stops for good.

But wherever we go from here, Bitcoin’s new, more direct relationship with fiat is almost certainly here to stay, at least for now.

And for end users, that can only be a good thing.