The Shocking Truth About The Mass Adoption

I have two old friends, they drive me crazy when we talk about bitcoin and cryptos. The one doesn’t want to argue, he is only laughing and saying things like “tulip mania”, “bubble will burst”, “they all will be worth only a penny”.

The other is making annoying questions all the time, like “but tell me, what is Bitcoin”? “Is that money? Why should it be a currency? What is its real value? Why has it value at all if nobody can touch it, and states don’t accept it by tax payments? Can you pay with this in the supermarket?” (Meanwile, Arizona state passed a law to accept Bitcoin by tax payments.) (Fortune)

Measuring value

Theory and practice meet each other. Money and currencies have 5-6 different basic properties, economists say. Like scarcity, fungibility, divisibility, durability, transferability. This requirements are fulfilled by most cryptocurrencies. So, cryptos can be a medium of exchange, a paying instrument. But other very important point is that a money has to be a:

standard numerical unit of account, a unit of measurement of market value, of goods, services and other transactions.
(Sources: Visualcapitalist, Eleventhirthypm)

Damn high volatility

When economists debunking cryptocurrencies are running out of arguments, they are mostly saying that Bitcoin can’t be a unit of account or measurement, because of its high volatility. You can’t compare the value of something to the value of Bitcoin, if Bitcoin itself has no clear value. What if it has the half, or double of value tomorrow than today?

The truth is, yes, Bitcoin and altcoins are highly volatile, much more than conventional currencies, commodities, equities, and this makes them not an effective money – yet. When moments of stability will come, when price fluctuations will be not greater than in case of Brasilian Real or Indian Rupee, I don’t know. But the actual volatility is causing too much problems.

Trustless coin needs trust

Others are questioning the capability of Bitcoin of serving as store of value, an other important characteristics. If value can’t be preserved, people will sell it as soon as possible to avoid losses. You can’t use a money in which you don’t trust. (The so called trustless blockchain technology is a different concept.) One practical reason why this savings role can’t be fulfilled now is the same volatility again.

An other reason is, because price isn’t surging anymore. But it will, and to the moon – can you say now. May be, I hope it also. But if price continues falling, people won’t hold Bitcoin, and when people don’t hold it, price remains unstable. A catch-22, or vicious circle. Not all people like gambling.

Breaking the vicious circle

Fortunately, this type of vicious circles, also on stock exchanges, are tending to break one day and prices will turn around. (When no more weak hand sellers are present on market, or when all are feeling the investment is very cheap.) But the bear market can stay long time with us, even years.

An other, not so frequently mentioned issue with cryptocurrencies is, that we are living in a world where economic growth and consumer spending, investing and state household, and most companies are functioning with debt. We live in a debt-addicted society, and cryptocurrencies are not suitable as a loan-taking currency.

Who will be hurt?

In first place again due to the mentioned high volatility. If crypto-price moves a lot, either credit giver, or credit taker will be hurt very badly. (Imagine you take a loan of 1000 USD in Bitcoin and pay back 4000 soon if the price flies to the moon.) Who ‘d like to take or give a credit in a currency which isn’t existing in the laws of his country? Or, when you don’t know how much tax payment obligations will you have after the transaction?

I’m not a fan of academic scientific theories, and I basically don’t care if you call bitcoin a currency or not. But these are tough practical problems, and I fear, therefore the “mass adoption” which is so badly desired by crypto-enthusiasts, can take longer, may be many years. In my humble opinion cryptocurrencies sure are currencies, but in a very immature, baby-like state, evolving slowly, making two steps forward, and one step back.

Overestimating and underestimating

May be Bitcoin or Ether price doubles next week, for whatever reason. Sorry, folks, I know many of you are waiting for the quick and big mass adoption. But it takes a little longer, may be much longer, as by Amara’s law:

We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.

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Disclaimer:

I am not a financial advisor and this content in this article is not a financial or investment advice. It is for informative purposes only, or simply to make you think, entertain, increase testosterone and adrenaline level. Consult your advisers before making any decision.

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