I've seen countless arguments that Bitcoin succeeded because it was a store of value, and that it managed to do that without also being a medium of exchange. I've heard other arguments that something can't be a store of value without also being a medium of exchange. I agree with this sentiment, but then how would that explain Bitcoin?

I argue that Bitcoin succeeded because it did become a medium of exchange.

But wait, didn't the big blockers all say that never happened? Did Blockstream and their Core cronies ruin digital cash back in 2017? Well, turns out they (we) were wrong (kind of). Here's why.

What Is P2P Cash, and Who Needs It?

Digital cash is electronic fungible money that can be exchanged permissionlessly without centralized intermediaries. Anyone seeking financial sovereignty needs it.

Bitcoin, even today, achieves the properties necessary to act as digital cash for what most people need.

Bitcoin isn't censored

Right now, you can send Bitcoin using its blockchain to anyone, for whatever purpose. There is no entity currently that will get between you and your recipient on this. We've seen major hacks from exchanges, sanctioned nations, etc. go off without a hitch from the Bitcoin side, proving this use case.

Bitcoin is relatively affordable

Relatively speaking, Bitcoin's blockchain is affordable to use for many payments. A typical transaction costs around 20 cents today. This has not always historically been the case, but it's been rare that fees have gone above $1-2, and even then it has largely been for a few hours or days during some kind of a mass congestion event.

Now of course, the uncertainty in transaction fees has caused many use cases to dry up, and users have adjusted their behavior accordingly. Now, they largely go to use the chain for use cases they'd pay $0.20-2 for. No matter where in that range the fees fall, they're happy to pay it for the transaction size they want. If it's (very rarely) something obscene like $80, they come back the next day and are satisfied.

Bitcoin is (sort of) fast

Compared to many financial transfers in the legacy fiat system, Bitcoin is relatively fast. Within 10 minutes a lot of transactions are resolved, and others that may make you wait an hour or two still aren't that bad for a larger, occasional transfer.

For online purchases, sending the payment and walking away isn't that big of a deal. For some physical purchases even, Bitcoin is niche and rare enough as a payment that there's typically enough trust between parties that an unconfirmed transaction can be seen as final enough.

It's just a hunch, but I bet that for what most people use Bitcoin payments for today, most users don't find themselves explicitly waiting for finalization.

Bitcoin works for what really matters to people

At the end of the day, people facing real censorship aren't primarily stressing about if their coffee purchase is going to decline. They're worried about taking their wealth with them when fleeing a country. They care about buying a plane ticket, house, tank of gas, month's supply of food, lawyer, bribe a border guard, what have you.

For these actual, important use cases, Bitcoin works. The coffee and small payment use case is very important, but it's less important to the censorship-resistant aspect of money. It's more for regular, daily payments, not emergency payments under duress.

Why Is Bitcoin the Best P2P Cash?

Bitcoin won the peer-to-peer digital cash use case (so far) by winning at three key things: security, liquidity, brand.

Security

Bitcoin is viewed as the most secure blockchain in the world. In reality, it is probably one of the top few, but where it really wins out is in time and trust: it has been among the most secure for by far the longest time, and there's 16+ years of trust in its codebase to function.

I've argued that its decentralization is much more nuanced, and overblown, compared to the hype. But, compare it with other heavy hitters like Ethereum and Solana, and you can see why there's at least a strong perception that Bitcoin is the least susceptible to corporate or government takeover.

Liquidity

This is by far the most important aspect.

At the highest level, at exchanges that you can transform to fiat currency in your bank or whatever else, nothing comes close to Bitcoin in being as universally available, and in such high value quantities.

No matter the amount or the geography, Bitcoin has the highest percentage chance that your money can be exchanged at a favorable rate for something else, or that whoever you pay with it can do the same. That's where the true value is.

Brand

At this stage of the game, Bitcoin's brand is super important to its usage as digital cash. The whole world basically knows what it is, and if you say "Can I pay you in Bitcoin?" that resonates orders of magnitude higher than any other digital asset.

Of course, when we invariably increase the adoption of decentralized digital assets, this won't be nearly as unique. "Crypto," or another word, will suffice (maybe "privacy coins"?) to communicate the reality of decentralized digital assets. But for now, nothing does the job like the word "Bitcoin."

For these reasons (largely due to its head start as the first crypto), Bitcoin remains at the top of the digital cash heap. For now.

Wait, Are You a Small Blocker Now?

NO.

Let me be clear: I think Bitcoin's success comes very much in spite of, not because of, its decision to not scale on-chain.

It may seem like I made a glowing review of Bitcoin above, but it's going to look a lot less glowing with the context of everything still holding it back.

It can't be money for the world

Today, Bitcoin works as censorship-resistant money for a few million people. With transactions peaking around 700,000 a day, that's enough for several million people to make occasional transfers. But if you expand that to the world's population of 7 billion+, then that's only one transaction per several decades.

Bitcoin functions as it does because relatively few people use it. It either will continue to function this way for the same (or similar) number of people, or at scale it no longer will function.

Bitcoin scaled by essentially scaling up the dollar value of its users and use cases, but that invariably excluded a lot of people. I'm interested in freedom money for the whole world. I don't want to turn away people looking for freedom. Bitcoin turns people away.

Small payment censorship is still a problem

Yes, censorship of your coffee purchase will still be an issue.

In a world where financial censorship only affects daily, mainstream, small payments, people may not fear losing all their wealth or their ability to feed their families, but the threat of having daily coffee purchases disrupted still has a chilling effect.

When you can't just go to your grocery store and buy food, can't walk into a shop and buy something, can't hang out with friends at their preferred establishment without jumping through hoops, you'll probably compromise your principles to avoid this situation. You'll be censored.

The small block approach is unsustainable

Probably the biggest issue with the current state of Bitcoin is that it won't work forever.

The system was built on decreasing inflation and increasing fee revenue, and there just isn't a way that the latter is happening right now. At some point per-transaction fees will need to skyrocket, the blocks will need to get bigger, or there will need to be a tail emission.

Bitcoin's current value is all but guaranteed to change in the coming years. I may have to write another article soon about how it no longer works as digital cash.

Without privacy, censorship resistance is fleeting

The other elephant in the room is privacy.

When North Korea's government is stealing money from an exchange, it doesn't matter that the whole world knows it. No one is going to invade the country to get their stolen Bitcoins back. Censorship resistance works without privacy.

But for average people, using their money under threat of censorship becomes more difficult if everyone knows they're doing it, and how they're doing it, who they're doing business with, etc.

Privacy as a whole in the space hasn't become an issue because not enough people know how crypto works to spy on it, and those who do haven't acted on this knowledge much yet. But, when it's widely known that you can't keep a secret stash of Bitcoin from your spouse in a divorce, Bitcoin's digital cash reputation will take a massive, well-deserved hit.

Think about where we'd be with bigger blocks!

If we had scaled Bitcoin, we would have been able to extend this same use case and promise to so many more people, so many more use cases, and without the uncertainty of how long this would last sustainably.

A shell of its former self still being beautiful doesn't mean it wouldn't have been so much more beautiful if it was still thriving.

Crypto is too cool to just do one thing

Even if the digital cash use case ends up being met by Bitcoin, there's so much more out there to decentralize.

Even if I used Bitcoin as my primary money (I haven't in 9 years), I would still use a whole host of "shitcoins" to do other things that otherwise would be done by legacy centralized tech.

Bitcoin missed out on so much opportunity by remaining limited. But, for now, it functions as the most-used digital cash system in the world, which in turn powers its store of value use case.