Skeptics sometimes argue that bitcoin as a currency (referred to with a lower-case “b” to distinguish it from Bitcoin as a protocol and payment network) has no value because most merchants do not accept payment in bitcoin and what good is your money if it can’t be spent? Indeed, there are only around 14,000 venues worldwide that accept bitcoins directly, and dramatic price volatility (in US dollar terms) continues to limit bitcoin’s usefulness in commerce. However, if we add this adoption barrier to bitcoin’s “tough sell” list, we should also include a caveat: value is a social construct that can be abstracted in a multitude of ways, so judging bitcoin exclusively on the basis of retail use is a bit short-sighted.
I’m of the opinion that adoption will increasingly take hold once we move beyond bitcoin’s price discovery phase and as more people grasp the benefits of transacting without reliance on a third party. If you don’t buy that, read parts one and two of Ten Years in Why Bitcoin (Still) Matters, and consider this: the Bitcoin ecosystem is expanding brilliantly even as the price dumps — open source projects like Lightning Network are growing dramatically to make Bitcoin more competitive with high capacity payment rails like Visa and Mastercard, prominent institutions like Fidelity and ICE are introducing new financial products and services that will bring greater liquidity and more price stability to the market, and mainstream companies like Square are facilitating the adoption of bitcoin by brick-and-mortar stores.
In reality, scalability and liquidity are only two of the issues that need to be resolved before a serious adoption phase begins; we’ll also need regulatory clarity, better mechanisms for confidential transactions, more education and friendlier user interfaces for the technologies built around Bitcoin — all of which are coming. While we still have a long way to go and many obstacles to overcome, it’s quite telling that there have already been a number of real world applications for Bitcoin over the past ten years. And if you remove moral judgement from the equation, bitcoin in monetary form has provided a tremendous amount of value for the people who use it. Some of the use cases which further validate the notion that bitcoin already has worth include:
Perhaps the best known and most contentious use case for bitcoin has been for illicit purposes. As with any new technology ahead of the curve, criminals tend to be among the first early adopters. This was true when the Internet first emerged and it was true for Bitcoin. Silk Road customers used bitcoins to buy and sell more than a billion dollars’ worth of drugs over a two-year period (between 2011 and 2013), and cyber criminals raised millions of dollars (transacted in bitcoin) from ransomware attacks. Bitcoins have also been used to facilitate money laundering, tax evasion and, to a more limited extent, terrorism.
While criminal activity is certainly cause for concern, use of fiat currency for similar crimes routinely occurs on a much larger scale and on a more frequent basis…recent headlines about the suspected money laundering of $350 million USD by Deutsche Bank (on top of their prior involvement with Danske Bank in a separate money laundering scheme valued at an astounding $150 billion) are far more alarming.
Going forward, I believe the use of bitcoin for nefarious activities is likely to decline for several reasons:
- Criminals are learning that Bitcoin isn’t really anonymous since money trails are recorded in an open blockchain that stores a permanent, immutable history of all transactions.
- Companies like Chainalysis are actively working with governments, crypto exchanges and financial institutions to identify instances of fraud, extortion and money laundering.
- As exchanges and money service providers become increasingly compliant with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, it will become easier for authorities to link wallet addresses with real user identities.
- Efforts by cybercrime units are already underway to blacklist Bitcoin wallet addresses that are used for ransomware attacks. Regardless of how effective this will be, criminals will need to work much harder to keep their identities hidden, or use alternative, more anonymous methods of transacting.
- Price volatility (for as long as it lasts) is a source of ongoing concern for criminals seeking to use bitcoins, especially during a bear market.
As is the case with the Internet, wireless communications, and just about every other technology that has brought profound value into our lives, Bitcoin will continue to have some small portion of its user base engage in unlawful activity. However, dismissing the use of Bitcoin simply because it can be used by bad actors would be a tragic disservice to society, especially when we consider how it’s already being used in far more constructive and beneficial ways.
Store of Value
Arguably the largest use case for bitcoin today is as a store of value. Like gold, it is seen by some as a hedge against inflation, and as an appreciating asset that will retain its worth or increase in purchasing power over time. If you need proof that bitcoin serves this purpose, have a look at the price charts from 2011 to present. Ignore the volatility and draw a line connecting all the lowest price dips year by year…you’ll understand why it’s been the best performing asset over the past decade.
If you purchased bitcoin near the all time high (or at any time this year) you have yet to celebrate any price appreciation but it might be wise to exercise a little patience….Bitcoin’s technical design was elegantly engineered to be resilient at its core and this property, historically speaking, has also held true when it comes to price.
For the citizens of Venezuela who are experiencing an absurd annual inflation rate of 800,000%, Bitcoin has been an excellent store of value. It’s the main reason Venezuela ranks fourth in terms of global trade volume according to data gathered by Local Bitcoins, a peer-to-peer trading platform. Other countries like Argentina, Turkey, Zimbabwe and Iran, which are suffering from currency devaluation have also seen spikes in bitcoin trade volume over the past year. So while critics like Nouriel Roubini, Jamie Diamon and Warren Buffet have written off Bitcoin as a terrible store of value, savvy investors in countries with poorly managed monetary policy might beg to differ.
Bitcoin possesses a couple of features that make it a great platform for donations. First, its public blockchain, or open ledger, is immutable and highly transparent so donors can be sure that contributions are routed to intended recipients, without any banks or governments skimming off the top. Second, the Bitcoin network is cheaper and more efficient than the traditional financial system when it comes to time-sensitive international money transfers. The SWIFT system used by a global network of 10,000 banks is sluggish and error-prone, and the bureaucratic overhead involved in cross border payments results in high commission fees and less than desirable conversion rates. Local banks are also under the influence of special interest politics which can impede relief efforts, and they could be rendered inoperative during a national disaster or economic crisis — precisely when timely financial aid is most desperately needed.
There are a number of small humanitarian aid efforts underway in places like Venezuela and Rwanda where Bitcoin is being used to verifiably get money directly into the hands of those in need. Paxful’s “Built with Bitcoin” campaign recently raised enough bitcoins to finance the building of a two schools in Rwanda, and a new initiative called Airdrop Venezuela has recently set out to raise a million dollars in Bitcoin (and other currencies) that will be distributed to as many as 100,000 Venezuelan citizens who downloaded an Airtm crypto wallet.
Other examples of goodwill Bitcoin initiatives include a cryptocurrency fundraising campaign by the French Committee for UNICEF, and the establishment of the Pineapple Fund which was founded by an anonymous donor who used $55m in bitcoin profits to support more than sixty charities. Bitcoin for Charity showcases some of the verified organizations that accept bitcoin donations and more can be found here.
Bitcoin’s censorship-resistant qualities have made it an ideal payment channel for causes that aren’t liked by governments. It was used to support the WikiLeaks legal fund when companies like Paypal, Visa and Mastercard succumbed to political pressure and refused to process donations. If you’re in the camp that supported the WikiLeaks blockade this particular example probably isn’t a selling point, but hopefully you can rally behind the use of bitcoin to empower women in countries that routinely suppress their rights. In Afghanistan, where it’s culturally frowned upon for women to open their own bank accounts, this social entrepreneur paid her female staff members in bitcoin to provide them with more financial sovereignty and independence.
For an extremely well-informed, expert account of how Bitcoin has been, and continues to be, used to protect the civil liberties of people living under authoritarian regimes, check out this fantastic interview with Alex Gladstein, the Chief Strategy Officer at Human Rights Foundation. He provides some excellent insights on how human rights activists, dissidents and journalists around the world are using Bitcoin to bypass the mass financial surveillance apparatus of dictatorships.
Cross Border Remittance
Another use case with relevance to the global community is the ability to make faster and cheaper overseas payments. Using legacy banking to send and convert cash across borders is cumbersome, slow and expensive, and while alternative money transfer services might be faster, they’re not cheap: Western Union can charge upwards of 10% in transfer fees. As reported in 2015, African migrant workers benefited from bitcoin payment services like Bitpesa which enabled them to cheaply send money to friends and family back home. And according to a recent study by Humans.net nearly a third of US-based freelancers prefer receiving cross-border payments in Bitcoin or other cryptocurrencies in order to preserve a greater percentage of their paycheck.
On a personal note, bitcoin came in handy when a friend living in a different country needed to reimburse me for some money I had lent him while traveling. Services like Venmo or Cash App weren’t available where I live, and using Bitcoin was far less of a hassle than executing a slow and expensive wire transfer.
Admittedly, Bitcoin’s utility as a medium of exchange remains extremely limited in scope today, and I’m quite certain cynics will continue to cast a shadow over its use by pointing to volatile price swings and highlighting its adoption by criminals. However, I also believe that skeptics who ignore Bitcoin’s already-proven utility will eventually find themselves in the minority. Indeed, this has happened with every major disruptive technology in recent history (be sure to watch Andreas Antonopoulos’ highly recommended lecture on Infrastructure Inversion if you need more convincing).
Bitcoin has the potential to be a highly potent and net positive agent of change, and I’m a firm believer that this will become increasingly apparent as new use cases become more prevalent and widely known. By the time this happens I suspect we’ll be in the middle of a new bull run and looking back at the price today, it will be painfully clear to those who dismissed it just how dramatically undervalued Bitcoin was.