Friday, December 8, 2017

Is There a Path for Bitcoin to Go Mainstream?

Trying to cover Bitcoin is a bit like trying to cover gold in some respects. People that are really into the topic tend to get pretty emotional about it at times. Here, we just try to provide the most accurate information we can without any kind of agenda attached to the information.

In the case of Bitcoin, we have people who are enthusiastic supporters and others who are enthusiastic detractors. When they debate the future of Bitcoin, they can get quite passionate (see links below on the electricity consumption debate). In this article we will examine whether Bitcoin has realistic path for mainstream adoption as an alternative payment system to the existing legal tender currency based payment system.


First, lets examine where things stand today. Currently, Bitcoin is still in the "early adoption" phase of its life cycle. It has seen strong growth in both its price per coin and also in the number of people who own it, especially in the last couple of years (this chart shows the upwward trend in blockchain wallet users which of course indicates a strong increase in Bitcoin and other cryptocurrencies). The price per Bitcoin has seen explosive growth higher as well with some normal market corrections along the way. 

While this growth trend is impressive, Bitcoin is still far from a payment system that is in use in the mainstream of daily commerce. I believe some reasons for that are:

- it's new and somewhat confusing to many people who are familiar with existing payment systems like debit cards, credit cards, checks, cash, etc. that already meet most people's needs adequately

- it has been somewhat awkward to obtain Bitcoin and also to spend it easily for most people. You have go through extra steps that most people don't see any need for

- the blockchain ledger system that Bitcoin runs on has scalability issues that have not yet been resolved to allow for the huge volumes of transactions per minute a real payment system must be able to support if hundreds of millions of people are going to use it daily

- most merchants don't accept Bitcoin for payment even though some do and there is some incremental growth in those that do over time.

- Bitcoin is not legal tender and there is no official institution that stands behind it. While many Bitcoin proponents like it just because it operates outside the official banking system, for now most people are not comforted by that fact and still trust the banking system they have always used and are familiar with.

I am sure there others, but these are a few of the main reasons why Bitcoin is not widely used for daily commerce. If Bitcoin someday managed to attract 150 million users, that would still only be 2% of the global population. In contrast 95%+ of the global population uses various legal tender currencies all over the world every day. For that matter, I could probably estimate that 20-25% of the global population (1.5 to 2 billion people) probably owns some gold. Gold is another form of money to some people historically and many more people globally are familiar with gold being used that way than Bitcoin.

Given the above information, is there a path for Bitcoin to Go Mainstream? I believe the answer to this question depends upon the answers to some other questions.

- Will we see the existing banking and monetary system fail at some point in the future? If not, why would most people search for alternatives to what they use now and like just fine?

- If the present system does fail, what alternatives will emerge to challenge the present system which is based on legal tender fiat currencies? History suggests gold (and silver) will be a contender. Bitcoin is in the process right now of trying to gain acceptance as another viable alternative.

- If Bitcoin can emerge as a mainstream option, will there be an "easy to use" system in place for people to acquire it and spend it as they are used to doing now with legal tender currencies?

- Can Bitcoin resolve the problem the blockchain has in handling large volumes of transactions? 

I cannot answer all the above questions because I don't know what choices people will make under the different assumptions presented. However, in regards to the last question, we should watch to what happens with DragonCard Visa. It will launch in the UK and will offer people a much easier way to utilize Bitcoin (and other cryptocurrencies) more like regular money. has this to say about DragonCard Visa:

"With Bitcoin trading at all time high, investors are working out whether it's best to sit on their stockpile or make the most of it while they can. For those wishing to utilise their investment, opportunities can be limited, with only a small number of big companies currently supporting cryptocurrency transactions. London Block Exchange (LBX) wants to change that. It's launching a new Visa debit card that will let users spend their Bitcoin (and other digital currencies) anywhere across the UK."

This concept is very similar in the way it will work to Glint (which we covered here) which seeks to make gold easier to hold and spend like regular money. Making anything easier to use and understand is important to encouraging it use in everyday mainstream commerce.
Both Glint and DragonCard try to solve the problem by simply allowing the users of their MasterCard or Visa to pay for things anywhere those cards are accepted just like they use their debit card or credit card now. This is a very important step forward towards more mainstream adoption. 

Both of these new payment options do charge a fee (.5% of each transaction) to do the behind the scenes real time conversion into the local legal tender fiat currency at the point of sale (the merchant gets paid in his local currency). Goldmoney offers its users the ability to buy gold or bitcoin and also offers a prepaid card that can be funded by selling gold or bitcoin held in your account for a 1% fee.

So it will be interesting to see if the fees inhibit wide scale use for payments or not. Like anything, the bigger the volume of transactions, the more likely that the fees can go lower and thereby encourage even more use. The newly offered products (Glint and DragonCard) that automatically convert to fiat currency at the point of sale are only available in the UK for now (still in startup mode) so they will need to prove they can cross over the threshold of adoption for wide scale use in daily commerce. 

Under the present circumstances, legal tender currencies have a built in advantage over competitors of any kind (gold or Bitcoin) because they are universally accepted for payment and supported by official institutions that most people trust.

What we need to watch over time is to see if these alternative payment systems can overcome the advantages of legal tender currencies and especially if something happens to shake public trust in the existing system

My own guess is that absent a new major crisis that undermines the existing system, things will just rock along without a major sea change in the way people pay for things. Alternatives like gold and Bitcoin can gain some market share based on new technology that makes them easier to use for most people. But that process likely happens gradually over an extended period of time. 

In the crisis scenario that truly undermines public confidence in the present system, all bets are off. Both gold and Bitcoin are poised to benefit dramatically under that scenario. Now they both have ways to make it easier for the general public to own them and spend them in ways they are familiar with. That could lead to a realistic path for more mainstream adoption for either or both of these alternatives.
Added notes:

For those interested in views on Bitcoin coming from alternative media sources, you may wish to listen to this discussion about the potential for Bitcoin vs. Gold in the future:

In the Youtube discussion just above, included is a debate on how much electricity is required to keep Bitcoin operating and if that will become a major obstacle for Bitcoin in the future. Both sides can throw out a lot of data in an effort to try and support their view. Below are links to just 3 articles that will give you an example of this debate:

Bitcoin on track to consume the entire electricity supply by 2020

(Bitcoin electricity consumption data cited in the article linked just above)

Opposing view article suggesting the Bitcoin electricity usage claims are "sensationalized"

When I see all this my head tends to explode and I have to ask:

How is the average person supposed to have any idea what the correct information is on all this? It boggles my mind to think that we have come to a point where in order to try and stay on top of all the changing technology that MIGHT impact our monetary system (or might not), now you must somehow become an expert in the dynamics of energy consumption. 

The only thoughts I can offer on Bitcoin (not blockchain, but Bitcoin) at this time are:

- we cannot dismiss it completely as a factor for major impact in the future no matter how many obstacles it has to overcome. People did that with Donald Trump and look how that turned out. People have proclaimed Bitcoin would die several times now and have been proven wrong so far. Bitcoin wallet holders increased substantially in 2017.

- in my view, the thing to watch carefully with Bitcoin is whether or not it can achieve a critical point of mass adoption by enough people to be viewed as a true alternative to the existing currency system. Will something like DragonCard Visa be what makes that possible?

- if Bitcoin cannot become a viable alternative payments system, can it still become a viable alternative for storing wealth long term (more like people have viewed gold)? Does a younger generation see Bitcoin as their new version of gold?

- will Bitcoin end up like a Ponzi scheme as many detractors predict? Will the "early adopters have a chance to profit, but the "late arrivers" be left holding the bag? 

One thing I know. Bitcoin is like gold in this regard. There are people for and against it that are very passionate and vocal in their views on it one way or the other. More and more people are paying attention to it and there is no end to the number of people trying to predict its future. Central banks prefer to ignore it, but are finding that harder to do as more people are attracted to look into it due to its huge price rise.

What all these people are really trying to do is predict how people will behave and what choices they will make in the future. Here, I just simply don't try to do that. I believe Jim Rickards complexity theory is valid and that trying to make these kinds of predictions involves too many complexities including how the "herd" may react to a crisis. I do think that anyone trying to make their own personal decisions is best served by having the most accurate information possible as input and that what actually happens is what matters. That is what I try to focus on here as best I can. I will admit I never imagined it would get this complicated when I started this blog.


  1. In event of war or EM weapon use in a country, gold and cash can still be currencies, not so much. A bird in the hand is worth two in the cloud.

    1. Thank you Doug. A good point for sure. I will add that Bitcoin advocates will say that Bitcoin could still be traded as well (they make that point in the Youtube discussion I posted in the article), but it would be a very awkward process and I doubt many people would be able to actually do what is required on even know what to do.

  2. A thank you to a reader who offered me the comment below by email:

    Hi Larry;

    You rightly focus a major portion of today’s article on the “legal tender” issue. Let me add one important, if obvious, point on that subject.

    The U.S. GDP is something above $18 trillion, and Federal tax receipts are currently around $3.2 trillion, with a budget deficit. Then there are state taxes, ( primarily sales tax, income tax, and various fees ) followed by local taxes, ( primarily property tax ) which fund municipal services. In all, the tax burden may be on the order of 35% + of GDP, all funding government services al the various levels.

    ALL of these expenses are invoiced and PAID in the “legal tender” currency, and therefore all of the receipts will be demanded in that same currency.

    The largest single expense of government is salaries. Only when salaries are paid in a currency can taxes be extracted in that same medium.