It's late 2020 and the price of Bitcoin continues to soar to new heights that we haven't really seen any sustained price level on for most of Bitcoin's history. And both consumers and investors are extremely sensitive to the price of Bitcoin. When the price rises, interest spikes across news cycles, search interest on search engines and it also increases the propensity for new users to buy their first cryptocurrency. As more people, businesses and institutions enter the Bitcoin marketplace, one giant void remains. The elephant in the room, as it were, remains the poor use case and user experience of Bitcoin in the live marketplaces, both online and offline. Users and businesses, by and large, do not operate in Bitcoin and prefer to use their local fiat currencies in the form of cash, debit and credit cards. But why?
What Are The Hurdles For BTC?
Functionally speaking, cash and card payments work pretty well in the modern day economy. The user experience is fairly high in most developed countries and there are multiple options to pander to the needs of various demographics and businesses. The bigger problem happens when you compare the present day use of fiat currency at shops to the relatively bad user experience required with Bitcoin. A user must first acquire Bitcoin which may take time and also cost trading fees. They must then find one of a very few businesses that are willing to accept their Bitcoin as payment and send their Bitcoin off, which will require yet another TX fee. For the very few Bitcoin fanatics that make it this far, mostly on principled reasons rather than practical reasons, the vast majority of businesses will automatically sell the Bitcoin they receive for native fiat currencies through a payment processor like Bitpay. And for a retail Bitcoin economy to flourish, the Bitcoins must go full circle with Bitcoin payments from consumer to business, business to employee, employee as a consumer back to businesses. And society is nowhere near ready to close that loop to making everything reality on any scale that matters as of yet.
All of that is just the beginning, too. Even if there was to be a greater social push for the use of Bitcoin in the mainstream marketplace, Bitcoin would still run into a few hurdles. Most notably with it's current Transactions Per Second (TPS) limitation which hovers at around 4.6, compared to Visa and Mastercard which are around 100,000. Not to mention that each transaction might be fairly expensive to process for the consumers, especially for cheaper goods on a percentage basis. Add to that the second elephant in the room which are overbearing governments which are the ultimate trump card. Governments can decide to abolish Bitcoin as legal tender or payment overnight which could completely ruin the cryptocurrency industry in any crypto-bull municipality instantly. And by sending Bitcoin back to the underground where it once was, it would take a long time, if ever, for it to be able to return and make a come back on the financial main stage.
What Innovations Does Bitcoin Need?
There are three major innovations that we believe will help Bitcoin achieve a more popular level on the main stage.
- Rebates / Cashback
- Optional Consumer Protections / Ease of Use
- Bitcoin Scalability
The first thing on the list is probably the most underappreciated and one of the more valuable propositions to the Bitcoin marketplace should it ever get developed. For those that are unaware, credit cards cost businesses a lot of money. They often take a flat fee with an additional 3-5% in extra fees as a commission of all sales. That's before there is also the percentage of charges made to a business that are fraudulent that ultimately become the responsibility of these businesses. When you tally all of that up, there is a very large cost to businesses when accepting credit card payment. Interestingly, in order to promote the use of credit cards, most credit cards offer rewards in the forms of points or cashback to their users which often grants them 1-2% in bonuses over more traditional payment mechanisms like cash. Hence, there is a profit motive for the consumers to use credit cards as a payment mechanism that is more costly to businesses.
What we'd recommend would be for a Bitcoin payment processor to set up a system whereby the Bitcoin user would be rewarded with 3-5% in rewards or cash back (a superior amount over current credit cards rewards programs). And considering that Bitcoin is fraud proof, what you ultimately have done here is taken away the fees granted to the credit card company and given them directly to the Bitcoin consumer while simultaneously eliminating the chance of fraud and also supporting the Bitcoin network. This profit motive alone could help propel Bitcoin very far into the payment processing marketplace if there was sufficient demand. If it simply becomes the most practical and beneficial way for both consumers to spend and for businesses to receive (since they can't really take cash payments online, whereas Bitcoin can work in all locations), then you have really paved the way for mass adoption by creating consumer demand.
The second thing on the list deals with the ease of Bitcoin's use. Educating consumers on what exactly a Bitcoin wallet is, how to avoid theft, how to spend Bitcoin and a plethora of other activities is quite difficult. While using Bitcoin may appear like an easy task to an seasoned cryptocurrency professional like most readers of the MintDice blog are, the starkly vast majority of consumers simply won't know how to use Bitcoin, nor care. The best way then, to force this superior currency onto the masses is to either make Bitcoin extremely easy, or to make it so easy that they don't even realize that they are using Bitcoin themselves. This can be manufactured on multiple levels but would ultimately require central authority custody holders for certain less educated classes of cryptocurrency users. Again, while most seasons Bitcoin veterans may want to own their own private keys, there should be plenty of alternatives so that grandma (or less educated crypto users) can use their Bitcoins just as easily on their own terms. Having options here for all types of people is one of the only other ways to take Bitcoin to mass market penetration.
The final option simply has to do with Bitcoin's scalability on both the amount of transactions the Bitcoin blockchain network can process per second and also the cost per transaction for the end consumer. This is a very technologically tricky question that could use an article all on it's own, but suffice to say, if there ends up being a long term solution to increase Bitcoin's throughput while simultaneously driving costs down to near zero, this is one of the best things that could happen for the long term growth of Bitcoin. Bitcoin is definitely severely limited by how expensive and slow transactions are today and this problem will only continue to become worse over time as Bitcoin's popularity increases unless a technological solution presents itself and reaches consensus.
Will It Happen?
That's the tricky question. The cool thing is that with any progressive disruption and innovation, there is a lot of money for people to make. So there is a very strong incentive for many different individuals or companies to want to create the payment processor discussed in this article or a consumer protection custody agent. But ultimately, it will take a lot of development and a lot of consumer awareness to get anywhere. It will take a very serious concerted effort to get people to change their habits. But with enough of a social push, a lot of things are possible.
Between the coronavirus, geopolitical turmoil seen on social media everywhere and other civil unrest, one thing that everyone can agree on is that some level of change is needed in society for the betterment of humanity. I would argue that there is no single better change than to take the center of financial power away from the hands of politicians, bureaucrats and major corporations and into the hands of every day people. This can only be done by divesting away from fiat-based currencies and into cryptocurrencies like Bitcoin. And Bitcoin can only truly prosper and get out of it's cocoon if it can figure out a way into everyday transactions for everyday people. Outlined in this article are some of the many ways that this can happen. Whether or not it will happen is a complex question determined by free markets, corrupt markets and the will power and social desire of the populace.
But it can only start somewhere, and that somewhere is with yourself. So as a consumer, start using your Bitcoin at places that accept it. And if you have a business or work for a business, consider either accepting it or telling your boss that you should accept it. Even if it doesn't drive much additional traffic to your business, it's one step in the right direction for everyone, no different to all other positive social change like recycling or climate change.