Bitcoin is the first and most widely known cryptocurrency on the planet. While it is true you can already use BTC to purchase goods and services, this method of payment is often only carried out today by the hardcore crypto enthusiast rather than the everyday consumer.
As it stands now, Bitcoin and other cryptocurrencies are treated in a purely speculative way. Volatile prices, government regulations, slow transactions, excessive fees, and general uncertainty among market participants are just a few of the hurdles facing Bitcoin today.
I often hear Bitcoin referred to as a “store of value,” yet the value of Bitcoin changes dramatically by the day. One hundred dollars of BTC today could easily be worth fifty dollars tomorrow or possibly two hundred by the end of the week.
The point here is that the only true value Bitcoin has is whatever someone is willing to pay for it. Each time Bitcoin reaches a new all time high, that means there wasn’t a single person in the world willing to pay more than the last posted price for Bitcoin – that’s when the price falls.
Why would anyone buy something with Bitcoin if there is such potential for profit? This is the current state of the HODL culture, where selling BTC for anything other than trading is considered a bad move because of its potential value in the future.
Fiat currencies on the other hand, obtain a set value backed by a government that is far more stable on a day by day basis. If we truly want to achieve a crypto economy where everyone can store and transfer value with confidence, we need a stable currency backed by a recognized value, coins like Tether or True USD fit this criteria.
A stable currency that connects all unstable assets and allows people to truly store them without having to worry about the value dropping as time passes, this is what fiat does now.
Government Regulation and Uncertanty
Depending on where you live in the world, taxation for business and individuals alike can be a nightmare. In the United States for example, taxes must be paid on gains made by investments.
To quickly illustrate, say I purchase $100 worth of BTC at $10,000 and a week later decide to buy a cup of coffee with some of my BTC. Now the price of Bitcoin is $15,000 and my $100 is actually worth $150, which means I gained $50 (or 50%).
My cup of coffee costs $5 plus sales tax. Not only to I have to pay the sales tax, I have exchanged my BTC for a good with a market value, meaning I will have to report 50% of my $5 plus tax as income.
To make things even more confusing the tax rate changes depending on how long ago I bought my Bitcoin. As you can see, taxation can quickly become a nightmare when capital gains and losses are involved – this problem is solved with a fixed value coin.
Businesses cannot afford to receive payments in Bitcoin and keep it for the operational business costs. It would be a complete gamble. If Bitcoin goes up by 10%, the business owner can expand his business. If Bitcoin goes down by 10%, businesses might not be able to pay their employees.
The business might even stop making a profit, which may eventually lead to the business going bankrupt. Bottom line, there is simply too much risk involved for merchants, yet they will be the drivers of crypto mass adoption.
3.) Transactions are Expensive and Slow
In most cases, the act of purchasing goods with cryptocurrency involves an instant market order for fiat by a third party to complete a transaction. This whole process is similar to credit card payments, where the merchant has a fee that is passed to the customer.
There is also a mining fee or withdrawal fee involved depending on whether you are paying from a private or exchange wallet. In the end, this is what taxes and fees could look like for a simple cup of coffee:
- Exchange Fees
- Mining Fees
- Merchant Fee
- Sales Tax
- Capital Gains Tax
Bitcoin transactions are extremely slow and expensive as well, sometimes taking 10 minutes or more for a single confirmation. I won’t go into detail here but there are many coins that process transactions much faster and cheaper than Bitcoin, so technology is not a problem in this aspect.
Some Final Thoughts
Cryptocurrencies will never see mass adoption in the consumer market if things continue to operate in its current form. In order for a cryptocurrency to succeed in this aspect it will need a stable price and fast network with no mining fees – perhaps backed by a government or non profit organization.
Business and consumers will need simple merchant platforms with fees comparable to credit cards. Governments will need to make regulations more clear and less intrusive to allow innovation to flourish.
Until something comes along that fits this criteria, fiat will always remain the cheaper, faster, safer way to pay in my opinion.