Bitcoin transactions have been experiencing an uptick thanks to widespread adoption across the globe. What started off as a pet peer to peer payments project has now become an alternative to the existing financial system. Tried, tested and facilitated by individuals who believe that the disruptive nature of the currency will find major applications, Bitcoin has indeed come a long way. What makes the cryptocurrency so lethal is its ability to provide near zero cost transactions and without the interference of a third party for confirming. Added to this, the network also ensures a degree of anonymity and consensual security that makes it more preferable. Eight years have passed from the inception of the cryptocurrency and something interesting is happening in the start of 2017. Let’s delve deeper into the details:
The transactional boom:
Gradually Bitcoin experienced a steady increase in adoption in 2016. With most of the countries advocating digitalization of transactions to promote a cashless society, things have looked good for Bitcoin. With the kind of attention Bitcoin has garnered, the positives of the currency have been highlighted and has caught the public attention. It was just a matter of time before the currency went from just a speculative asset to an alternative investment means. Finding mainstream adoption, the currency has experienced a boom in its transaction owing to heavy merchant adoption.
Increasing Vendor acceptance:
As referenced already, the merchant and vendor adoption has been increasing steadily. Coinmap shows that currently there are around 9000 recognized vendors accepting Bitcoin worldwide as compared to 4000 in 2015. The online merchant acceptance has also increased drastically with Japan itself having around 20,000 online merchants that accept Bitcoin in payments. The abolition of 8% sales tax and favorable legislation encouraged the transfer of this asset seamlessly. Same has been the case with rest of the Asian countries where the legislation has helped the innovation.
The all-time high transaction fee:
The Bitcoin transaction fees are at an all-time high, up by 1289% since March 2015. The Bitcoin transactional volume has gone up by 173% over 2015, equaling 3 transactions per second. The increase in the volumes can be reflected through local bitcoins. Localbitcoins has shown that countries where the inflation is high[Nigeria and Venezuela] are significantly adopting to Bitcoin transactions. With steady increase in value and application, Bitcoin would surely become the prime means of exchange in good time.
Bitcoin has been the fore-runner amongst the stream of digital currencies that are set to disrupt Fintech. With growing popularity and adoption, the Bitcoin ecosystem has developed rather quickly owing to its underlying technology. Major financial institutions trying to exploit Blockchain technology has called for drafting legislation on this front. While all this looks positive, let’s look into if the cryptocurrency can actually replace fiat currencies:
Evolution of means of Exchange
Historically Barter system has been a strong medium of exchange; gold coins, beads and feathers later replaced it. Finally we have arrived upon fiat currencies or paper cash. As such the paper cash doesn’t have a value of its own. Backed by Gold reserves with central banks, they have served as store of value for a long time.
The ‘Gold Standard’ collapsed with the ‘deflationary’ Great Depression of 1930. Then on, the backing of currency by Gold slowly disappeared into shadows. The fiat currencies started to run mostly on backing of central banks. From an exchange of value, the monetary system shifted to an exchange of confidence issued as currency by the government.
Bitcoin vs Ideal Currency
An ideal currency should stand good on these three important characterstics:
- Easy and convenient means of exchange
- Should serve as a unit of account
- Act as a viable store of value
Bitcoin would fulfill the first criterion with flying colors as it has been one of its major selling points. It is a borderless, zero fee peer to peer transaction network. In the second criterion, unit of account implies being able to get goods and services in exchange. Bitcoin can serve as a better unit of account on the basis of having uniform value across borders. For the third criterion, Bitcoin faces some challenges due to high volatility currently. But with better adoption, the currency will achieve stability and can transform into a safe store of value. Hence Bitcoin looks good on all criteria for an ideal currency.
Why Bitcoin will win
As an alternative to the current monetary system, we can fall back on Barter System or exchange through solid Gold. But barter system is highly inconvenient owing to unequal valuation of goods and services. While Gold can hold value, it is difficult to carry the same securely at all times. Hence the technological alternative in the form of cryptocurrencies would be best fit solution for replacing fiat currencies.
Contrary to people’s speculation, this change wouldn’t be so hard to accommodate. This is because all the transactions today are carried out electronically over wires, net banking, paypal and other means. Roughly about 10 % of the transactions are actually dealt in hard cash. Adopting a system that would make these dealings easy and peer to peer would be a welcome change. It is just a matter of time and fluid adoption after which Bitcoin would become primary means of exchange. All it needs is people’s confidence similar to what they currently have in paper currencies.