Will Bitcoin Ever Become a Useful Currency?
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Glancing at headlines in recent months might have you believing you woke up in 2021 again. Cryptocurrency fanaticism is rising as expeditiously as crypto prices are, and it appears another bull market is here. But despite the surge in prices, investors and skeptics alike still wonder about the usefulness of crypto.
Bitcoin, as usual, is leading this year's crypto bull run. The world’s most ubiquitous digital currency broke its all-time high in March, reaching an eye-popping price of $73,750. This success can largely be attributed to two factors: The Securities & Exchange Commission’s approval of bitcoin ETFs in January, and the upcoming bitcoin halving event, which will artificially constrict the creation of new bitcoin. Investors are hoping this event will help further propel prices.
But as successful as the asset class has been in 2024, there’s one thing holding some people back from embracing crypto adoption: practical utility. In a time when a single bitcoin trades for more money than a brand new BMW, you still can’t actually use it to pay for things.
Is bitcoin actually money?
When it was created in 2009, bitcoin’s pseudonymous creator, Satoshi Nakamoto, intended for the crypto to be a new mode of exchange and a stand-in to fiat currencies like the U.S. dollar. The blockchain technology on which it was built is meant to keep transactions safe and verifiable, and the minting of new bitcoin over time would introduce greater liquidity. For its first 10 years, that’s how most early bitcoin enthusiasts viewed it.
But as bitcoin prices have taken an astounding turn, climbing from just a couple hundred dollars to around $70,000, so too has the expected utility of the digital currency. Now, it’s viewed as less a mode of exchange and more a store of value, not unlike other investments marked by scarcity such as gold.
This change in attitude is seen in stories like the “bitcoin pizza” tale, when in 2010 one holder paid 10,000 BTC in exchange for a two pizzas. The recipient used it to pay for a trip. While the exchange was celebrated the first use of bitcoin in a commercial transaction, the larger context is how they squandered the potential $365 million they would’ve had if they held onto the coins.
Bitcoin may have popularity, and it may be a trendy investment, but it still hasn’t become the product it was intended to be: a viable alternative to government-backed money. The question remains when will bitcoin be the digital world’s decentralized answer to the U.S. dollar, but experts are taking this question even further, asking instead will bitcoin ever be an actual currency?
Bulls and bears agree that bitcoin may never be a currency
There’s a rift between many economists and crypto experts on whether bitcoin is going to last as an asset class. But when Money spoke with two experts from each camp, it was apparent that they agreed on one thing: Bitcoin might never actually become the currency it set out to be. Depending on who you ask, though, that possibility might not actually matter.
Many economists argue that there’s no justifying bitcoin's value. Dr. Bob Johnson, an economics professor at Creighton University, contends that bitcoin has a high price, but because of its lack of accreditation and use case, it lacks any inherent value.
“There's no use case for cryptocurrencies,” Johnson says. “People have to agree that it has value. The U.S. dollar has value because it has the full faith and credit of the U.S. government. Bitcoin doesn’t have that.”
Johnson also argues that even if the world were to agree that bitcoin has a certain value, there is little incentive for the U.S. government to accommodate it as a currency. “Do you think the U.S. government is ever going to cede monetary policy to people mining bitcoin in their basements?” he asks rhetorically. He also notes that the bitcoin supply is heavily concentrated in the hands of a small number of holders, flying in the face of the idea that bitcoin can “democratize finance” in the way it seeks to as a currency.
Additionally, cryptocurrency is expensive and inconvenient to transact. Between the volatility of bitcoin prices and the high fees required to trade coins between parties, it’s not economically feasible to use it as money given current circumstances. For these reasons, crypto skeptics say bitcoin won’t ever become a fiat currency like the USD.
In fact, even crypto enthusiasts admit that bitcoin isn’t going to be a true currency. “Volatility and high transaction costs … inhibit its practical use for everyday payments,” says Martin Leinweber, digital asset strategist at MarketVector Indexes. “Even with the development of layer-two solutions, such as the Lightning Network, which aimed to address the scalability and cost issues associated with bitcoin transactions, the anticipated success hasn’t fully materialized.”
Does it matter if bitcoin is never a currency?
Johnson and Leinweber might both be of the opinion that bitcoin may not become a currency like it was meant to be. But unlike Johnson, Leinweber argues that bitcoin’s current use as a store of value is the coin’s use case, and so it doesn’t matter whether it becomes a currency or not.
Leinweber says that “bitcoin’s value as a hedge against economic instability” is what its holders value, not unlike gold. Bitcoin traders already have digital alternatives to the USD that offer practical utility, such as stablecoins, or cryptocurrencies pegged to the price of the USD or other fiat currencies. He contends that “stablecoins will be the payment solutions, not bitcoin,” adding that “understanding bitcoin’s role as akin to digital gold, rather than as a primary medium for payments as initially proposed,” is what investors will appreciate about bitcoin and give it value.
And while projects like Bitcoin Beach in El Salvador offer enthusiasts the chance to pay bills, purchase food and get haircuts by using bitcoin as legal tender, large-scale utility is unlikely to be achieved.
What remains is a fundamental divide between crypto fans and skeptics about whether bitcoin’s value justifies its jaw-dropping price. Some say it does have value as a decentralized, digital version of gold. Others, like Johnson, say the value is irrational and compare bitcoin's prices to tulip mania in the 1600s, when bulbs of the flower cost fortunes.
Both sides say bitcoin's unlikely to become a fiat currency for one reason or another; they just disagree over whether bitcoin — in its current state — is valuable enough to justify its price.
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