Let's shuffle all the technological questions about Bitcoin to the side for the moment. We're not going to talk about transaction speeds, scalability, security, or anything of the sort. What we're going to talk about its pure and simple spending ability in the context of Bitcoin adoption. In that arena, Bitcoin has a major problem. Frankly, it's not really being spent anywhere - you can associate it with a high Bitcoin price, low transaction speed, or any other issue. Extrapolating from the data on CoinMarketCap, we can see that the 24-hour volume as of July 2018 was roughly $4.19 billion. Estimates of how much Bitcoin moved via exchanges versus merchants or peer-to-peer transactions vary wildly. Yet if the foreign currency exchange market is anything to go by, it's roughly 1 percent. That's 1 percent of transactions – $41.9 million – that are not speculative in nature and are actually moving materials through a market – buying coffee, merchandise, plane tickets, etc. Even if that number is as high as 50 percent, that's still not a lot of activity for what's supposed to be a global, catch-all currency. We're going to look at why Bitcoin adoption isn't moving along as quickly as it could and how that might change soon.
The Challenges
Again, let's forget all the technological challenges for a second. That's really petty when it comes down to it, and specific to Bitcoin. Almost all cryptocurrencies suffer from these basic adoption problems, even accounting for differences in technology. The first is the investment trap. Ironically, cryptocurrencies are a victim of their own early, wild success. The semi-urban legend of the million-dollar pizza regularly makes the rounds on cryptocurrency forums. Basically, no one wants to spend a currency that could suddenly skyrocket in value. It makes sense. If you had a hunch that the $5 bill in your pocket today would be worth $100 tomorrow, would you spend it? Each Bitcoin is essentially a fixed-rate lottery ticket. Would you trade a potential winner for the few fiat dollars it cost to purchase? This stagnates the market and ensures that much of the daily volume is just Bitcoin changing hands between cryptocurrency investors and speculators. In short, no one is actually using the currency as a currency. As a result, the price stays volatile and there's even less incentive to spend it. The second big stumbling block to adoption is Bitcoin's legally gray regulatory status. Bitcoin's first big break in the world was via the Silk Road black market. This immediately brought suspicion on the coin as the currency of choice for drug dealers and gun-runners. The saga ultimately ended with the U.S. federal government seizing a huge number of Bitcoins and shutting down the market. It really made for a fabulous use case, but the stigma has been hard to overcome. Big banks and institutional investors hate to touch something operating in such a legal miasma, and the coin's famous volatility doesn't help matters, either.
Rays of Hope
That's the bad news. The good news is that almost all the challenges facing Bitcoin and other cryptocurrencies are evaporating as the market evolves. The investment trap problem will likely remain a problem as long as volatility is high and real-world use is low. However, a growing number of Bitcoin merchants are springing up each day. Craigslist now advertises an option for cryptocurrencies, and the list of A-list Bitcoin merchants is growing. As of mid-2018, here's a short list of the major retailers accepting Bitcoin:
● Overstock.com
● Expedia
● eGifter
● NewEgg
● Dish
● Microsoft
● CheapAir
Yes, Microsoft is on that list, despite founder Bill Gates' well-known skepticism of Bitcoin. In fact, Gates has said if there was a way to short the Bitcoin market, he would do it. Ignoring the fact that you can short the Bitcoin market, it appears that Gates and the rest of Silicon Valley are embracing their cypherpunk roots and acknowledging that cryptocurrency, in one form or another, is here to stay. That leads directly to the second big challenge. Just as Silicon Valley is beginning to realize the lasting power of Bitcoin and other cryptocurrencies, the U.S. government is tacitly acknowledging them as a valid asset class. The Internal Revenue Service clarified its rules on cryptocurrency taxation, implying that they're a valid currency of some sort in the government's eyes, and the U.S. Securities and Exchange Commission has made tentative steps toward introducing some kind of overarching regulatory framework. While that may curl the toes of cryptocurrency purists, it lays the groundwork for the entry of institutional money into the Bitcoin network. The amount of money floating around in 401ks, investment funds, and retirement accounts absolutely dwarfs the fiat currency in the Bitcoin market so far. With increased regulation, the conservative managers of these institutional funds can step into the cryptocurrency arena with a measured degree of safety and risk. That will, in turn, reduce the currency's volatility, simultaneously attracting even more investment and making it possible for Bitcoin to become what it was always meant to be – a real, live working currency.
The Future Is Now
Bitcoin adoption is growing as the market matures. This is bad news for the Wild West speculators but great news for the average crypto user or investor. Investors shouldn't hoard Bitcoin in wallets and exchanges. It is a living, breathing example of the power of the blockchain to free ordinary folks from the perceived tyranny of big banks and oppressive governments. As Bitcoin adoption grows, we may very well see a shift in the entire financial infrastructure to favor decentralization and individual choice. Bitcoin adoption has been a long and twisting road, but the endpoint may finally be coming into view. The future is now, and it can't come soon enough.