The purposes of cryptocurrency that would bring mass adoption in the opinion of people are variable. Although some prefer the use as digital currency others still want to see these currencies being operated as mediums of investments or securities.
Since the advent of stablecoins, they have shown massive growth in terms of trading volumes and market cap. Due to this, many stablecoins have reached the top 100 cryptocurrencies according to coinmarketcap.com like Teather (Number 5) and USD Coin (Number 25). In order to proceed with the discussion, it is important to understand the utility of these currencies. Due to the volatile nature, bitcoin is seen more as an investment option than a transactional medium. Stablecoins, on the other hand, has shown consistency in maintaining their 1:1 peg with their backing commodities or currencies. People have been investing in cryptos for the store of value but recently, due to the advancements in technology and minds of people opening for crypto, the need for digital transactional currency has also substantially increased.
Companies have tried bringing in use cases for bitcoin which would normalize it as a currency rather than a store of value. As the people who used BTCs for transactions were less, there wasn’t much of a problem. But as the number of people flooding into the crypto space increases, problems with refunds can occur sue to volatility, which can cause losses to merchants or the customers in equivalent fiat. Similarly, Crystal Stranger an Enrolled Agent (federally licensed tax expert) also had similar views relating to Bitcoin not being up to the mark of becoming a secure transactional currency. He stated:
Bitcoin and other cryptocurrencies can be problematic in payment transactions when customers request refunds, as should the refund be paid in cryptocurrency or in the equivalent fiat? When prices have fluctuated significantly this can cause a good bit of contention between customers and merchants. With a fiat-pegged stablecoin this is not an issue.
Another issue with using bitcoin as a transactional currency is the time that it takes to complete a transaction. It takes around 10 minutes for completing a bitcoin transaction as the block time of bitcoin is 10 minutes, but it can take more than the designated time due to the number of transactions in the block or due to the amount of time taken for a transaction to be validated. Zach Alam, the Chief blockchain consultant at onboard.one also explained how Bitcoin wouldn’t be able to become a transactional currency and would remain an alternative to gold. He stated, talking to BlockPublisher:
It’s slow to send, at ~10 minutes to confirm – we can’t expect shoppers to wait that long before leaving a store with their products.
Bitcoin, however, provides exemplary security and promises a financial system of its own that isn’t dependent on a currency. Stablecoins are pegged to fiat currencies and would be affected by the change in the valuation of the currency. Inflation, debt and other crises would affect stablecoins equally. Bitcoin is prone to these issues and forms a financial system of its own.
On the other hand, currencies like Libra are being launched on large scales which aim to be transactional currencies around the world. These currencies have the potential to take crypto to a level that hasn’t been reached before but on the downside, they might take away the spotlight due to the proposed system of a homogenized financial system around the world which is decentralized and nonvolatile. Apart from this, different countries are also looking to launch their own blockchain-based digital currencies so that external bodies or currencies do not have to disrupt their own financial systems. Looking at the interests in stablecoins developing around the world, the time might not be far away when stablecoins surpass the market cap of bitcoin.
If bitcoin is normalized as digital gold as stablecoins are being normalized as transactional currencies. Both of these currencies would not only survive side by side but will help build a digitized economy across the world.