Cryptocurrency has been the craze in the past few months. The pseudo investment vehicle started off the year with a rapid bull run through March and then a drastic dip in late May.
There were a variety of reasons for this and those that have been in the market for a while will know that this is the norm.
Regardless of the volatility, cryptocurrency is still a very enticing thing for many especially HODLers — individuals who hold on to the coin for the long term. In recent months, there has been a huge interest in cryptocurrency by firms and even countries where the latter includes El Salvador. The country started an 'experiment' by making bitcoin their legal tender alongside the US dollar. This experiment is seen by many HODLers as the future of cryptocurrency as countries start to use it to buy and sell items. However, there are also other financial experts that are wary of the rise in interest arguing that cryptocurrencies do not have the right characteristics and properties to be used as a 'proper' currency.
In this article, I will be arguing for the latter and state what I think will be the future of Bitcoin. I will also be referencing this article and discuss what Eswad Prasad said in an interview with CoinDesk.
High Transaction Rates of Bitcoin
Bitcoin started out as a technology to replace the use of fiat currency in a time when the world is just reeling out of the 2008 global financial crisis. However, it didn't really take off until the past few years but even so, bitcoin has been highly limited in its use as a medium of exchange.
This has been mainly due to the high transaction fees of bitcoin. Furthermore, the transaction fees can also spike when there is high traffic and thus make it unreasonable and impractical when attempted to be used as a medium of exchange. Currently, it sits at about USD$2.455.
Therefore, there has been a trend of people using $BTC as a store of value instead of a medium of exchange. This is akin to gold which might be why $BTC is sometimes referred to as digital gold.
In the article, Prasad brought up a good point supporting this statement:
Bitcoin has not delivered on its initial promise, but somewhat paradoxically, it has become a store of value, with people holding on to it as a speculative investment.
Slow Transaction Speed
If you have been using your credit cards or debit cards to purchase items, you would notice the quick transaction speeds. Visa and Mastercard have transaction speeds of about 1700 transactions per second. On the other hand, the transaction rate of $BTC is about a measly 4.6 transactions per second. It is worlds away.
Therefore, it is completely impractical to use $BTC as a medium of exchange. You wouldn't want to wait about 5 minutes for your transaction to go through at the supermarket.
However, there have been improvements such as the Lightning Network which is what El Salvador is using to allow faster transactions by building a layer on top of the blockchain. But fundamentally, the process of $BTC will still be slow as the transactions are slowly entering the blockchain. However, the future is bright albeit uncertain for the currency with a recent announcement of the Taproot upgrade which will allow for smart contracts.
What's the Use of $BTC then?
The two points that I've highlighted above are the main problems being faced by $BTC. However, it is not without any benefit. The development of cryptocurrency will always be attributed to $BTC whether we like it or not. Being the founding currency of the future, research in it has led to the development of so many other forms that are not only more usable but also more environmentally friendly.
From ETH 2.0 with the proof-of-stake model and $ADA with the super high transaction rates of about a million transactions per second, it has brought cryptocurrency into a whole new realm.
Bitcoins legacy is going to be a very rich one. The [generic] blockchain technology underpinning the network has enabled the creation of a vast array of new financial products and services. And I think it has shown a path towards more decentralized finance, which will bring many benefits.
There is an ongoing trend of countries trying to build their own version of the blockchain to provide digital forms of their currencies like China and the US. CBDCs might in fact be a new frontier for cryptocurrency though it is not without its own issues like decentralisation and privacy which are the main enticing factors of crypto in the first place.
Regardless, the ongoing development of cryptocurrency and blockchain technology is something I am bullish about and something that you should concern yourself with.
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