I first became interested in Bitcoin back in 2014, after hearing about it from a more technologically-minded friend. I wanted to get into it but it was confusing and seemed too difficult. At the time, I was completely broke and so the idea of going to an exchange and buying Bitcoin was pretty much out of the question. I didn’t have the equipment for mining, but I thought I’d let my laptop do it for a while and see if it accumulated anything.
In the end, I gave up pretty quickly because it was difficult to understand and even the numbers (earning 0.0003232 satoshis) were hard to conceptualize. I didn’t know about faucets then, unfortunately. In 2017, just prior to the boom, I got back into it when I heard about Ethereum. I began investing because by then I had money and was looking for something to do with it. I found the whole scene exciting and filled with possibilities. I began trading, investing, hodling…
Several years on, the market is way down from its high but I am still excited about Bitcoin and digital currencies. It was fun and educational to be a part of that boom and bust of 2017-18 and, although I don’t claim to know anything about the future, I am cautiously optimistic and endlessly curious about it. I like to think that Bitcoin will continue to gain importance along with a few other coins and tokens.
When Bitcoin was invented, it was intended as the currency of the internet, and some people still think of it in that way. However, it should be obvious by now that its lack of liquidity and violent fluctuations in price make it pretty useless in that sense. It certainly works as a currency because it transcends borders easily… but those fluctuations bring risk that preclude it from being used for daily purchases. Last month, one of my students paid me in Bitcoin because most other payment services are banned in his country and bank transfer fees are criminally high. However, he paid me at the peak of Bitcoin’s recent rally and since then it has lost 30% of its value. Even if I had cashed out a few hours later, I would still have lost a few percent… This sort of thing makes it unfeasible on a large scale. People like to talk about Amazon and Starbucks accepted crypto payments but could you imagine a company that makes millions per day seriously being willing to accept that sort of risk? Their shareholders would simply not tolerate that sort of potential loss.
My view of the future for Bitcoin and other digital currencies is a little different. I think that Bitcoin was a serious revolution as it created something that could genuinely change the world. The very fact that my student could pay me in a matter of minutes with no fees is incredible and breaks the banks’ monopoly on international transfers. This is so important that it is impossible to overstate it. However, I do think that Bitcoin’s role will be primarily one of investment. I think it is a digital asset rather than a currency; it’s a store of value more than something you would spend in a shop.
It is better to think of Bitcoin as digital gold. We no longer trade in gold on a daily basis because it is inconvenient. I wouldn’t want to carry a gold brick to the supermarket and shave off a few pieces to pay for my cereal and vegetables. However, I might invest in gold having looked at historical trends, and I might use it for keeping or transferring wealth. Rather than keeping my money under my mattress and letting it lose value to inflation, I would consider buying a small amount of gold and letting the price rise so that I can sell it to someone else in future. That is essentially what Bitcoin can offer – it is a finite resource that can be used as a store of value when traded for other types of currency.
There are other digital currencies, though, that might be better for payments. Take stablecoins, for example. I don’t personally use these much except to make short-term trades when there is temporary volatility. But these are pegged to the dollar (in most cases) and so you could be sure of a certain level of stability. My students could pay me $10 and I would know that a year later that $10 is still worth $10… I doubt that the value of USD will have dropped or risen very much in that time.
These are imperfect, of course, because you still may need to sign up with an exchange that is beholden to local laws. You may even need to pay certain fees… However, it is still infinitely better than a bank. You are able to send money quickly to a person with a digital wallet, regardless of geo-political boundaries.
Here is another example: I have a small publishing company and so I pay royalties to my authors every six months. These are often small amounts of money that I try to pay via Paypal. Of course, Paypal takes a cut of between 5-10%, which is unfortunate, but it makes the process easy. One of my authors doesn’t have a Paypal account and so I need to use international bank transfer. Normally, the process takes 5 days and costs 4x as much as the amount of money that is sent! How can that even be legal?!
There is a wide array of digital currencies that could be used to do this sort of transfer within minutes (or less) for pennies. Crypto is slowly spreading and I do think that it will be partially coopted by big banks and companies to suck some of the freedom out of it… but ultimately it is a tremendous invention and one that is currently in the process of revolutionizing finance. In any case, it has been fascinating to watch the technology and marketplace mature, and I look forward to seeing how it develops in the future.