Bitcoin has not gotten the mainstream adoption that it hoped for after it entered the global financial world back in 2008. Why isn’t everyone talking about bitcoin despite its price being in the thousands of dollars range? Is the asset not ready or is it the people? The answer, a mix of both.
Bitcoin is a technological innovation and termed as a “cryptocurrency”. Cryptographic algorithms applied at its software core lend the “crypto” title to it. It is based on a decentralization specific technology called blockchain. Blockchain does not involve a single main entity controlling the network, instead it delegates the central power to a number of decentralized nodes maintaining a particular network. For the bitcoin blockchain, anyone can join the network and become a node, but it has its hardware and software requirements in place. People who are supportive of this asset are also largely the ones skeptic of the traditional banking system. They want to promote a decentralized financial system in order to provide the world with an alternative to the debt-based banking system. Besides this, bitcoin largely holds its prominence due to its price which is around $7,835 per bitcoin at the time of writing.
This technological complexity although opens up the doors of disruption and innovation in the financial world, it is also what holds it back from large-scale adoption among the public. Here are some factors that are hindering bitcoin’s adoption among the public.
Lack of Education
Cryptography is a subject unknown to the vast majority of people. Although usage of bitcoin does not require it, the addresses used for wallets in the bitcoin space are cryptographically generated. Long hash strings are generated for address by the bitcoin network and it is something that is not usually preferred by a lot. Usernames are easier to remember and store while for long hash string addresses, it becomes a problem. Most of the people associated with it now have somewhat of an understanding of the financial trading world and the blockchain world. For a common man, it is a largely unexplored territory.
Besides, the procedure of entering the bitcoin ecosystem is something that is not known to many. Even most university students aren’t aware of the digital assets at all or have no specific compulsion as to why have it. If bitcoin is to gain more mainstream adoption, even an old man living in a small town should know how to use it. This will come from more exposure and education of the masses regarding the asset.
As a survey concluded:
Bitcoin needs to do much more to educate the retirees about it as a currency, technology and investment.
Price volatility is one of the most prominent issues associated with bitcoin. One day its price is seen shooting up and the very next day it is down in the dust. Since the start of April alone, the asset has gained more than 75% of its value, and is now floating around the $8k mark whereas it was in the lower $4,000s at the beginning of April. The same case is also seen for price drops.
2017 saw bitcoin rise from a few thousand dollars to almost $20,000 within a matter of months. This resulted in a lot of investors gaining huge benefits but as the bull-run ended, the bear run of bitcoin began and continued for over a year, resulting in the loss of a large amount of investor money. Such drops and bear runs lift the trust of the general public from the asset.
Volatility also holds it back from being used as a source of making payments. With price volatility expected, it only becomes natural not to use bitcoin for buying or selling goods. For bitcoin, an asset which aims to become a global digital currency, this creates an issue. But to some extent, volatility also drives some profit-hungry investors who want to secure quick bucks at much risk. Overall, it becomes an issue for the general public.
In order to tackle this issue, stablecoins have sprung up but they are essentially fiat mirrored in the digital space, as claimed by some, so they inherit the traditional world’s problems along with them.
Negative Media Connotation
After the global economic recession hit back in 2008, bitcoin came to the scene as an alternative to the traditional financial system. But instead of finding use-case in official frameworks, the main adoption of bitcoin took place in illegal cases. Its usage became aligned with money laundering and illegal activities on notorious and harmful online marketplaces, mostly operated on the dark web. Since only a few people knew about it back then as compared to now, it also became an instrument of conducting online scams and fraudulent activities. Thus, an overall negative connotation became attached to this digital asset which has largely carried on to now.
People who don’t know about it and don’t understand the technology usually refer to it as something of negative usage. This is one of the the reasons why bitcoin has not gotten the adoption that it wished for.
Lack of Institutional Investment
Since bitcoin is a technological innovation, there aren’t many laws and regulatory frameworks surrounding it. Due to a lack of concrete regulation, the large financial institutions usually hold back from adopting the asset. Since there is no physical backing of bitcoin with its price largely based on speculation, establishing trust around it is very hard.
Currently, the market capitalization of bitcoin is around $140 billion, very small as compared to the overall market caps of big financial institutions. If trillions of dollars are to be handled on a network, the need of concrete regulatory frameworks is imperative. Lack of regulation is part of the reason why the United States Securities and Exchange Commission (SEC) has not yet approved a bitcoin exchange-traded fund (ETF). If bitcoin is to become more mainstream, the path for the institutional investment needs to be made clear.
The dollar is convenient due to the fact that one can use it in the real world to carry out daily life activities with much ease as compared to bitcoin. There are not many services and retail stores that allow buying and selling goods using bitcoin. Since people don’t find a use of the asset in their everyday life, it has not become too important for them.
For bitcoin to get adopted globally, it needs to provide services on the ground for the people; digital presence alone isn’t enough.
Lack of Governmental Acceptance
In countries like Pakistan, governments have even banned the trading of bitcoin. As it becomes officially illegal to use the asset, adoption does not even come into the question. Bitcoin needs to establish governmental trust around it if it is to gain mainstream adoption in the future. This will largely be achieved by curbing out the illegal and negative elements linked with it, with money laundering and narco trafficking being some of the prominent ones that need to be tackled with immediately.
Other factors that are hindering its adoption are technological limitations. The issue of scalability is a prominent one in this regard. But still, it is not as big of a concern for a common man.
Bitcoin is also sometimes termed as the “digital gold” due to its parallels with gold which is a traditional asset of value representation. Bitcoin permabulls even claim that in the future bitcoin might even replace gold. But for bitcoin right now, its major role is largely undefined. It is still too early. Whether it can become the future standard of value representation replacing gold or challenge the global dominance of the dollar as the next global digital currency remains yet to be seen. One thing is sure though: it is not ready for mainstream adoption yet due to shortcomings associated with it on legislative and technological fronts. Only time will tell what will happen as bitcoin is just a decade old and poised against a system that took centuries to evolve.