The recent 25% drop, high fees, slow transactions and limited supply all show why it never will Bitcoin real currency.
On On May 22, 2010, bitcoin miner Laszlo Hanyecz bought the most expensive food in human history. Specifically, he paid 10,000 bitcoins for a pizza from Papa John’s. With one Bitcoin now worth more than $ 30,000, this pizza cost back around $ 300 million.
Nowadays, of course, no one would spend their bitcoins on something as mundane as pizza without first thinking about how much money they would have to give up in the future. Since then, bitcoins have changed from an interesting experiment in decentralized financing to the most powerful asset of the decade. Since 2010, their value has increased by more than 10,000,000% and only last year by 220%.
Present vs. past
Today, large companies such as Square or MicroStrategy and other large investors are investing in Bitcoin. Although Bitcoin is extremely risky and volatile, as evidenced by the 25% decline that took place between last Friday and Monday afternoon, Bitcoin was in a sense accepted into the club and is now considered by many to be a credible competitor to assets such as gold. Gradually, however, something strange happened, Bitcoin completely lost its original reason for being.
After all, bitcoin was not designed to be a speculative asset. It was designed to be a currency, a new medium of exchange that people could use to trade with each other. (That’s why we call him the cryptocurrency). When Bitcoin was first introduced to the world in 2008 in a White Paper, its mysterious creator, he called himself Satoshi Nakamoto, described it as a “purely peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without the need for a financial institution.
Bitcoin as a new currency
And that’s exactly what Hanyecz did in 2010. He sent an electronic payment directly from himself to another person without the participation of any third party.
However, it is now easy to forget that Bitcoin’s promise in the early days was to be a new currency that could call into question the hegemony of so-called fiat currencies, such as the dollar, by making the new currency untraceable and allowing people to cheaply and do business anonymously.
And because Bitcoin was designed to have a fixed number of coins – 21 million should be mined by 2140 – people could use it without worrying that inflation would devalue its value. It was a kind of cyberpunk fantasy that enchanted many. Back in 2018, CEO of Twitter and founder of Square said Jack Dorsey:
“The world will ultimately have a single currency. Personally, I believe it will be Bitcoin. “
The more people accumulate bitcoins and treat them as speculative assets, the less attractive BTC appears as a currency.
Bitcoin was never a currency
The reality, however, is that bitcoins have never really functioned as currency. Almost from the outset, only a small percentage of bitcoin transactions were made for the purchase or sale of goods and services – and many of them were of illegal origin. Remarkably, despite the speculative zeal that surrounds bitcoins, the total number of transactions has increased only slightly over the last two years. And this number is so small given the total number of electronic bank and credit card transactions that it is hardly worth mentioning. On average, there are currently around 325,000 bitcoin transactions – including trades – per day. There are about a billion credit card transactions in the same amount of time.
Slow transactions and large fees
So Bitcoin has not fulfilled its promise as a currency, a practical problem is also the fact that the processing of BTC transactions is very slow. For example, Visa processes approximately 6,000 transactions per second and is able to repeat this many times. In that case, it may be a problem to pay at your local convenience store or even buy something online.
Limited supply is the biggest problem
Because supply is limited as the demand for bitcoins increases (because, for example, people believe they can get rich quick by buying it), the value of bitcoins will also rise. So if you think your bitcoins will become more popular, then it’s foolish to spend them on pizza. You should accumulate them and then sell them as soon as their price rises. And the more people accumulate bitcoins and treat them as speculative assets, the less attractive they appear as a currency.
The transformation of Bitcoin from a putative currency into a speculative asset has been effectively built into the system from the very beginning. Bitcoin was coming here the whole time. Cryptocurrencies appeared later and are better designed to function as currencies, but paradoxically they are not nearly as popular as Bitcoin. However, in today’s world he is more of a store of value. And like gold, its value cannot be inflated by the central bank.
The fact that Bitcoin has no fair value does not mean that it is heading to zero. It just means that he has completely relaxed from his original purpose. What was to revolutionize people’s daily financial lives offered people the opportunity to get rich quick (or lose everything), or, in an ideal scenario, to protect their wealth from inflation. Bitcoin started as a cryptocurrency, but ended as a cryptoactive.