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The better criterium for mainstream seems to be the number of people holding bitcoin. Even if most people already knew about bitcoin and were able to use it (we are still far from this), that wouldn't make bitcoin mainstream if a relevant part of the people (5%, 7%, 10%?) didn't actually have bitcoins. Everyone knows what a diamond is, but real (natural) diamonds are not mainstream.
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"Blockchain's February announcement that it hit 3 million bitcoin wallet downloads illustrates the product's continued rise in popularity, (14%) this quarter (Slide  . The total number of bitcoin wallets [taking in account all major wallet providers and downloads] has almost doubled since last year, closing Q1 at 8,457,207." (see http://www.coindesk.com/5-facts-coindesks-state-bitcoin-report-q1-2015/). Of course, it would be important to know how much of these wallets have an actual balance. And many people have several wallets and downloads every new release. |
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Bitcoin can have an inflationay effect over fiat if a very high appreciation of its price creates a perception that bitcoin will keep raising and that fiat is an asset wih no value (good currency vs bad currency). That would induce people to dump (spend or exchange) fiat and shift their savings into bitcoin. Making its price skyrocket and fiat's price to drop not only to bitcoin but also to goods. This mechanism is one of the major causes of hyperinflation. No one wants to keep fiat in these moments.
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This statement "merchants have been "widely disappointed by the number of transactions they see in bitcoin" (Slide 50). According to the report, mainstream users simply don't have a compelling reason to try a volatile currency over its alternatives, yet. This sentiment is echoed by that fact that the growth rate of new bitcoin-accepting merchants is declining (Slide 47), continuing the downward trend from previous State of Bitcoin reports." (see http://www.coindesk.com/5-facts-coindesks-state-bitcoin-report-q1-2015/) confirms what I wrote about how much bitcoin still have to go on the mainstream road. Anyway, much of the somehow low trending interest on bitcoin is motivated by the downtrend of its price. I'm expecting this trend to continue for some time more. But watch out for the reversal. |
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In a report published last month, the Australian Treasury states that "Similarly, financial markets are increasingly globally integrated, and the international flow of capital has become less restricted and more mobile. Technology has also allowed new business models to evolve that have substantially changed the way businesses and consumers interact. New ways of transacting, including crypto-currencies such as bitcoin, were not contemplated when the current tax system was designed. These developments make determining the appropriate tax outcome for a particular company in a specific country difficult and raise concerns about the ability of companies to relocate profits to minimise their tax." (see http://bettertax.gov.au/files/2015/03/TWP_combined-online.pdf). I think this is an underestimation. It's not only corporations that can use bitcoin for tax evasion. Even if big corporations can try to use bitcoin to avoid paying huge amounts of money, massive fiscal evasion from individuals is also a big threat. Mainly because individuals are not subject to the same degree of control that big corporations are. |
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I left the notion of mainstream intentionally ambiguous. Because it's hard to define. One can use different criteria. 1) A percentage of the amount of the total expenses on one year. But even 1% would be huge and would imply a very high price for bitcoin. However, according to the mentioned Gresham's Law, bitcoin will be hoarded and only rarely spent. It's like gold. Gold is part of mainstream, but people don't exchange it much, they prefer to keep it. On the main functions of money: mean of exchange, unit of account and reserve of value, I think the last will be bitcoin's main function. It won't be used much as unit of value, because of its volatility (many places that accept bitcoin, prefer to announce the prices in USDs). It won't be used a lot as mean of payment, because people will rarely spend it. 2) Accessibility: the fact that anyone can easily buy, sell and pay with bitcoin. Clearly, this is decisive. If we could exchange and spend bitcoins on the majority of ATM and retailers, we might be able to say that bitcoin is mainstream. But imagine that even in these conditions bitcoin kept being scarcely used, with small demand. It wouldn't be mainstream. Many physical businesses complain they never had customers paying with bitcoin. So, this is a necessary condition, but it isn't enough. 3) A percentage of people owning it. This seems to be a good criterion. But it isn't easy to establish a number: 10% seems enough, but not 1% or even 5%. 70 million users on the all world would be great, but not enough for talking about mainstream. I guess only at 10% we would start to see unfold the problems above mentioned. But this kind of projections is hard to make. Think about Paypal (I hate it, but let's use it as example). Is Paypal mainstream? I don't think so. It had a volume of transactions of only 180 billion on 2013, about 150 million active registered accounts and in many countries you can use it as mean of payment only on a few places. So, it reached about 2% of world population. Bitcoin had about 23 billion USDs in trade volume alone during the last 12 months (see http://www.bitcoinity.org/markets/list?currency=ALL&span=6m, at current price) and maybe 1 or 2 million active users. It still has a long way to go. |
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The idea is simple: as more people adopt bitcoin, the price will keep going up and up on the long term (with short and median term major crashes). At some point, this is going to start to affect fiat value too.
I guess I more or less agree with this. There is the question of what is meant by "adopt". That is, someone might adopt bitcoin as a long-term investment savings, buying bitcoins and holding them for years. Someone else might adopt bitcoin as a payment method for stuff they buy every month. These two different types of adoption have different ramifications for bitcoin price, I think. It seems generally accepted that holding or spending bitcoin are two forms of adoption of bitcoin with different impacts. If the buyer of things with bitcoin bought the bitcoins it seems the result is positive. He had to buy the bitcoins. The seller of the good might decide to keep the bitcoins. Even if the seller sells the bitcoins, the result will be at least neutral. Probably, the buyer of the goods will talk about his positive experience with bitcoin to others and will buy more bitcoins. Of course, if someone buys bitcoins and holds them, that will be even more positive. It will decrease the number of bitcoins available, helping to make it scarce and, therefore, increasing the pressure for higher prices. In a context of bitcoin's price increase, everyone buys bitcoin to hold and this helps the bullish momentum. |
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The first post is based on the so-called Gresham's Law. When there is a strong currency (bitcoin, even if not currently) and a weak currency (fiat), everyone keeps the first and dumps (exchange or spend) the second. It's more or less what is happening on Venezuela, with people keeping the USD and dumping the Bolivar. When this trend of dumping the weak currency is generally adopted, it can cause major depreciations of the weak currency. This might happen one day with bitcoin versus fiat, starting with bolivar and other very weak currencies.
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The idea is simple: as more people adopt bitcoin, the price will keep going up and up on the long term (with short and median term major crashes). At some point, this is going to start to affect fiat value too.
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No, according to Second Life new policy, you can't sell lindens except on the official exchange, lindex. Therefore, only lindens that are bought on an exchange can be sold on that exchange. You can't deposit lindens on any exchange.
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Yes, banks can also apply the fractional reserve system to bitcoin. Actualy, there are already people accepting deposits in bitcoin and lending them. Some exchanges probably also live on a fractional system, lending bitcoins they don't have for people to short bitcoin.
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Unless there is inflation in technical sense (that is, increase on the general level of prices), fiat currency won't lose value. It's not relevant if the monetary mass created by the central bank (M1) increases if the general monetary mass (so called M3, that includes money created by banks, that is the huge part of money) decreases because of a credit crunch, as was seen since 2008-2009. The main point of the QE is to avoid a decrease of the general monetary mass, because this would create deflation and a general depression. So, M1 is created to avoid a decrease of M3 caused by the banking credit crunch.
But if bitcoin goes mainstream, as people start dumping their fiat holdings and, therefore, increasing the demand for bitcoin and its price, that will create an increase of the monetary mass, because of the fast increase of bitcoin price. This would acelerate the decrease of value of fiat. Thus, from a fiat point of view, there would be inflation, with any unit of fiat (like 1 USD) losing its value not only to bitcoin, but also to any good.
Of course, we are (still) very far from that. Bitcoin doesn't have currently any real capacity to increase the monetary mass of any country.
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