On December 4, 2013, the price of bitcoin hit its all-time high of $1,147. Exactly one year later, the price is $378.
For better or worse, price affects perception: when the price falls, skeptics’ arguments — about powerful incumbents, regulatory obstacles, lack of use cases, etc. — gain momentum.
The price of bitcoin moves up and down, however, for a multitude of reasons, most of them having nothing to do with fundamentals. “The fish is the last to know water,” and the world has been swimming in the polluted ocean of existing payment systems for so long that many cannot appreciate the obviousness, and inevitability, of bitcoin.
Let’s step back and look at some fundamental drivers for mass adoption of bitcoin. Here are ten of them:
People struggle to explain bitcoin, but bitcoin is simpler – much simpler – than existing payment systems.
For example, this is typical credit card transaction:
This is a bitcoin transaction:
- Native wins.
Native apps beat non-native apps. We have spent the last 20 years hacking old payment methods onto the Internet. Now, finally, we have a payment application native to the Internet. It is a digital-first, Internet-first product and, like all native apps, bitcoin has usability and a multitude of features, such as programmability, that non-native solutions lack.
- Lower costs.
Using bitcoin saves money.
For merchants, the lack of interchange fees in bitcoin transactions saves 2-4% and eliminates the massive costs of chargebacks.
For consumers, bitcoin compares favorably with every other payment method. Cash generally requires maintaining minimum balances and/or paying monthly fees in a checking account, as well as the payment of fees for such things as non-proprietary ATMs. Wiring money is no cheaper: it tends to cost at least $10 per transaction, depending on the service provider. Credit cards often include annual fees, huge international transaction fees and, unless you pay 100% of your bill every month, significant interest expenses.
Bitcoin is inherently viral. People (including me) love the email analogy and it explains a lot about bitcoin. Bitcoin, however, is poised for more virality than email.
Before email could spread, users needed a device (computer), Internet access and an email address. Today, the infrastructure required for bitcoin already exists: six billion people have connected mobile devices. Yes, you need a bitcoin wallet, but setup can occur after someone sends you bitcoin. That wasn’t possible with email and it’s a crucial advantage for virality.
We are in the very early phases of bitcoin, equivalent to 1992 or 1993 with the Internet, but when bitcoin hits its inflection point, its viral growth is likely to eclipse even that of email.
We are regularly presented with new products to make payments more convenient, but they are just hacks on our legacy system. While these hacks may increase convenience, they do so only incrementally. For example, Apple Pay makes it more convenient to use credit cards but, because you still need the physical card itself, the increase in convenience is limited. Apple Pay improves payments in the way fax machines improved document exchange: facsimiles helped but still required the creation and use of a paper document.
Bitcoin is purely digital — just software and math — no physical manifestation of bitcoin is ever required. If Apple Pay is the fax machine, bitcoin is email.
With bitcoin, no one needs to order plastic cards, go to ATMs to withdraw paper or carry around loose pieces of dirty metal.
6. The deepest network wins.
What has more utility, the Internet or a network built on top of it? The bitcoin network is as deep and wide as the Internet itself, with no gatekeepers. Therefore it has broader distribution and greater utility than all other financial networks, such as SWIFT, Visa/MC, ACH, etc. Over time, payment transactions will migrate to the deeper platform or be eliminated.
A decade ago, “globalization” was a popular term and the subject of bestsellers like The World is Flat. Now, however, we rarely use the term. That’s because globalization is no longer a future possibility but an obvious fact. We live in a global economy.
Bitcoin was “born global”: it belongs to no nation and works seamlessly across borders and markets. Bitcoin use will spread as globalization deepens: the Internet is the platform for our global economy and bitcoin is the currency of the Internet.
Humans are a “social animal” and have survived and ascended to the top of the evolutionary heap through complex collaboration, enabled by ever-more efficient means of communication. First drawings, then the written word, the telegraph, telephone, email, texting: when a new, efficient form of communication appears, our instincts drive us to adopt it.
Transactions are a conversation and money is the language we use; in other words, money is a communications tool. As such, bitcoin should be seen not just as a new currency or protocol but as a new technology for communication, one that enables, for the first time, every person on earth to converse efficiently about value. Basic anthropological realities — instincts — will drive us to adopt this new tool.
- Open source wins.
While all existing payments systems are, to a large extent, proprietary, Blockchain technology is open source. Greater innovation occurs with uncontrolled experimentation and collaboration, which open source software enables. Over time, Blockchain-based projects will out-innovate and overcome solutions based on proprietary technology. Since bitcoin is the incentive structure for use of the Blockchain, it will thrive as Blockchain projects proliferate.
10. The standardization imperative.
Not long ago, how you measured distance, weight and time varied depended on your locality:
“…systems of measurement were defined locally, the different units were defined independently according to the length of a king’s thumb or the size of his foot, the length of stride, the length of arm or per custom like the weight of water in a keg of specific size, perhaps itself defined in hands and knuckles.” Wikipedia
Can you imagine the complexities that imposed? It wasn’t until 1960, when the General Conference on Weights and Measures agreed to the meter–kilogram–second (MKS) standard, that we began using common units for measuring our world.
When measuring value, our modern global economy still lives in pre-1960 chaos. We use hundreds of different local units (currencies) to measure the same item. Imagine the friction removed, and the rocket fuel poured on international commerce, if we adopted a common standard — bitcoin — for value measurement.
We need a global “unit of account” for our modern, globalized economy, and bitcoin is it. Like the meter or kilogram, it does not exist in physical form, is not controlled by any government, and is usable by people at any time in any location.
It will take years for bitcoin to achieve its status as a global unit of account but, as it spreads across borders and becomes a de facto global currency, it will transition naturally into the standard unit for measuring value.
In sum, it’s easy to let the latest news story or daily price fluctuations dictate our perception of bitcoin’s future, especially in the context of our Stockholm Syndrome with legacy payment systems. Looked at from an objective distance, however, we can see fundamental underlying forces that make mass adoption of bitcoin inevitable. Bitcoin is the future.