Can you use Bitcoin as a practical currency?


#1

Bitcoin, a cryptocurrency that everyone is talking about and wants a piece of it. Here we will talk about how bitcoin can be used as a currency. So let’s dive right in. Since bitcoin gained pace many online and offline retailers now started accepting bitcoin as payment for their services but we need to see if it will be viable in the long run. As the price of the currency is always fluctuating and sometimes it deflates very badly to leave the owner annoyed.

In the near future, bitcoin may not be used as much as it is being used today and it is not because of the issue it carries with it like the size of transactions, fee per transaction or speed of the transactions. It will go down because of the microeconomics of it. We have seen the ridiculous or some even say outrageous gains in the pricing of bitcoin in past few years. It was expected that bitcoin will deflate someday but not quite to the extent. That is why people generally cannot trust bitcoin as their primary payment method because of the fickle nature of the pricing. And the people can lose money over it.

When the price of bitcoin skyrocketed in 2017 and almost touched USD $20,000 and then deflated quite literally in the next few weeks. It was expected by some experts and some even said it is a crypto bubble and about to explode. Right now bitcoin is trading at USD $6,935 which is not bad but what about the user who bought bitcoin at the 19000 dollars price. Did you know some guy in 2010 bought 2 pizzas worth $40 for 10,000 bitcoins, today which would have been worth over $69 million USD that is why people are scared to use bitcoin? It will never be used as the means to replace money.

You should know that every form of digital money or digital payment processors like Apple Pay, Google Wallet, Paypal, Visa, Mastercard, Bitcoin, and many other altcoins all of them incur a fee for every transaction which will increase the prices of items. Because every merchant wants to earn profits and nobody wants to pay 2-3% of every transaction to the banks. While traditional cash can save you that 2-3% fee. All over the world eighty-five percent of people still use the traditional currency that is cash available in their country and forty percent people in the USA use cash as a means to purchase daily household items.

There are many reasons for bitcoin to be not used as a practical currency. Some are listed here.

  • Some users lack the infrastructure required to use bitcoin
  • Some users lack the knowledge required to use bitcoin
  • It will not be a good solution for day to day purchase
  • It takes time to process a transaction that is why it is not practical at all
  • Not many stores accept bitcoin as a payment either online or offline
  • Stability in pricing
  • Strong network infrastructure required for its payment to process

In contrast to bitcoin, some of the cryptocurrencies are stable in pricing like Tether (USDT). Tether is a stable cryptocurrency on the market it trades for about $1 USD. There are other currencies that are somewhat stable in pricing like MakerDAO, Basis, StableUnit, all these currencies are expected to be stable in pricing. It is not like that their prices don’t fluctuate but it is not as often as others and not quite to the extent of Bitcoin. Most of these coins are unaffected by the market instabilities that is why most investors out there are looking for something that can be an asset for them in the coming years. To remove this volatility of pricing Stable coins were born they are also known as the holy grail of cryptocurrency. These Stable coins are price stable currencies just like the dollar or Euro. These Stable coins are somewhat similar to bitcoin in features but with less volatile nature of its prices. And that makes these Stable coins ideal for basic needs of the currency.

We were hearing rumors that Amazon will start accepting bitcoin payments on its platforms but it’s nearly been a year and there are no reports of being it added or even in development. There is plenty of signals given by Amazon for it but there is no official word around it all there that is just rumors or buzz. We know that Amazon web services offer blockchain solutions but they did not jump in the realm of cryptocurrency with any mainstream coin.

People often wonder about bitcoin that is it a form of money or commodity and I’ll say it’s the both. Let me explain, it has a characteristic of money and since its price is too high people start investing it bitcoin as a commodity. This thinking of people led to the price volatility. It is not certain that how long the price of bitcoin can remain stable. This is the main reason as to why bitcoin cannot be used as a means to replace traditional currency. I would like to understand different perspectives.


#2

I honestly don’t follow you. You saying that bitcoin deflate even faster than people anticipated but somehow price will drop and “people can lose money over it.”. Sound contradictory for me.


#3

Also don’t quite follow. How did you conclude that bitcoin can’t replace money providing argument that because of great adoption price went up?
Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts in a particular country or socio-economic context.


#4

Thanks for mentioning our http://stableunit.org/, but I think it’s not correct to compare Tether and Dai (which are already on the market, we actually event made some research measurement of their volatilities) and projects in the development, like Basis, Reserve or StableUnit. Yes, our simulations shows that it’s indeed more black-swan resistance than other models, but it’s a not alive yet so I won’t really speculate on that.


#5

Bitcoin and almost all of the crypto-currencies out there are exactly that - a commodity money. I personally do not think commodity monies have a chance at being globally used, and things like gold and silver prove my point. There is an enormous efficiency in using a centrally managed fiat currency with predictable low inflation, and commodity monies can never be as good. Look at the gold bugs today - they believe that soon all money will go back to gold, and in that context an ounce will go from 1200 -> 10,000 USD. That is a 9x return, which means we will have the booms and busts of people trying to time the market just like they are today.

A stable coin soft-pegged to the USD is a synthetic asset that mimics the excellent utility of an actual currency that works for mass adoption. If the USD is not as good as the Yuan at some point in the future, the synthetic asset can simply switch from 1 USD, to 0.8 Yuan peg (such that at the time of the switch there is no drop or pump in the price).


#6

The comparison to stable coins was to highlight the shortfall in Bitcoin’s price stability and to suggest an alternative. Maybe I went too ahead with some theoretical proposals (stableunit) vs just the existing stable coins that are already operational. :slight_smile: