“Bitcoin is useless as a payment mechanism and ridiculous as a store of value.” This is the latest negative Bitcoin related quote from the mainstream media. Last week, Bill Harris, former CEO of PayPal made this statement on CNBC, and it’s just one of many statements or headlines which have proclaimed Bitcoin to be worthless or “dead” since the early days of Bitcoin.
A couple more headlines from media outlets The Independent and the New York Post proclaim
“Bitcoin has fallen to its lowest point since November and will probably be totally wiped out” and “Why bitcoin may soon be worth nothing.” In fact, according to website bitcoinobituaries.com, Bitcoin has been pronounced dead a total of 308 times by the mainstream media and 68 times this year alone.
It appears as if during Bitcoin bull markets, commentators discuss the hype and euphoria surrounding Bitcoin, and due to its wild fluctuation in price, explain why it can’t be a store of value. During Bitcoin bear markets, the media are even more critical of Bitcoin, calling it a fad, a bubble and a useless technology without fully understanding its potential.
As outlined in several previous articles, Bitcoin is the first bearer instrument asset of its kind. It provides the user the ability to send censorship resistant transactions, which is an incredibly valuable tool in some circumstances. If you live in a developed country, then it can be hard to fully grasp the necessity of such a useful technology. In the developed world, for the most part, the banking system functions efficiently, currencies are relatively stable, and acceptance of these currencies internationally is widespread, so there is little need for Bitcoin in everyday transactions.
The developing world, however, is where the utility of Bitcoin becomes a lot more obvious. Collapsing banking systems and currencies are a real risk throughout much of the developing world, and in these regions Bitcoin is a vital asset. In recent years, the currencies of Zimbabwe and Venezuela have experienced severe hyperinflation, a currency phenomenon where a steep devaluation of a country’s currency causes its citizens to lose confidence in it. Bitcoin serves as an incredible store of value and medium of exchanging in these economies.
Bitcoin also enables the unrestricted movement of value across borders in jurisdictions where authorities have enacted capital controls. China is a classic example a country under heavy capitals, where the government limits overseas withdrawals and funds to be moved internationally. But it’s not just distant countries that are enacting these heavy handed measures. From July next year, the Australian government will make all cash transactions greater than $10,000 illegal, a move which may make Bitcoin quite useful in Australia.
Simply declaring Bitcoin as “dead” by referencing the price is disingenuous. There’s no denying that Bitcoin is currently in a bear market, having declined 70 percent in price since its highs last December. Looking at the asset purely based on price, Bitcoin certainly looks like it’s dying. But the technological innovations being developed behind the scenes paint a different picture. In the past twelve months, Bitcoin as a technology has grown by leaps and bounds. The contentious hard fork on Bitcoin’s network failed to rattle holders and demonstrated the robustness of the network. Bitcoin has also implemented Segregated Witness, an update to the code which makes the protocol even more secure and also allows second layer products to be built on top of Bitcoin. Finally, The Lightning Network, one such layer, promises to create a fast, cheap and reliable payment network .
In determining whether Bitcoin is dying, it’s important to remember that Bitcoin is a technological experiment as well as an experiment in monetary science. The price of Bitcoin will continue to fluctuate wildly due to its small market size, and a substantial decline in price such as the one experienced this year will suggest that it is indeed dying. But the success or failure of the technological developments behind the scenes must be considered before suggesting that Bitcoin is dead.
In contrast, it can be argued that it is the legacy financial system which is actually dying a slow death. The global financial crisis of 2008, and the bank bailouts which followed are evidence of a broken financial system. As time goes on, there will be bigger financial cs which could make Bitcoin a popular alternative to the legacy financial system. For Bitcoin to survive, perhaps all it needs to do is to continue to offer an alternative to the current system, and in time, it’s true usefulness will become apparent.
