The Bitcoin Adoption Problem
(We live in a fiat denominated world)
Warning: A long, and likely boring, post.
Note: I’m so new to Bitcoin that I might just as well be an outsider looking in.
Bitcoin, what a marvelous idea. A decentralized currency which cannot be counterfeited and can be transmitted anywhere in the world fairly quickly and with minimal fees.
I read articles here that point out ways and means of expanding the use of Bitcoin. The whys and wherefores of the need to expand general acceptance of Bitcoin seem to be ignoring the basics of everyday users. Namely, the ongoing need to convert BTC to fiat.
Yes, I understand that the value of one BTC resides solely with the holder. Some holders may value their BTC much differently than other holders. The argument goes ‘One BTC is worth exactly one BTC’. That’s fair and accurate until one should wish to exchange that BTC for goods and services. At this point there can be an agreement on the relative worth or a disagreement. Unless there is agreement, there will not be an exchange of BTC for goods or services.
Recruiting others to do business denominated in BTC is a worthwhile effort if you believe that the world actually needs a semi-anonymous decentralized currency system. I will not dwell on the politics involved except to say that revolution and anarchy have proven to make some places in this world better for everyday humans.
So, you want me to start accepting BTC for the goods that I sell to the general public. You are going to be faced with a difficult task. Say that I own a small grocery store and employ six worthy individuals. I have three main suppliers and about a dozen smaller, specialized, suppliers.
You approach me and say something like, ‘Hey you should start accepting BTC for your groceries’. Now, being the progressive grocer that I am, I say, ‘You know what, I’d like to do that, but at this point it is impossible’. Then you might say something like, ‘No, it’s really easy. You just figure out what fraction of a BTC your groceries are worth and accept that for your payment’. There is a big part of the disconnect.
I buy my supplies and goods with fiat. I pay my employees with fiat. I pay my rent and utilities with fiat. My wife takes what is left and buys shoes and clothing for the children, spends the fiat at the beauty shop, pays her tuition in fiat dollars. None of my suppliers of goods and services accept BTC and it is not very likely that they ever will.
So, then, the argument goes; convince all of those others to do business in BTC. This amounts to a monumental task that would likely take two or three lifetimes to accomplish. Consider the case of carrots. Say I convinced my carrot supplier to accept BTC. He would have to convince the broker to accept BTC. The broker would have to convert the wholesaler. The wholesaler would then tell the farmer that he can only pay with BTC. The carrot farmer should reply, ‘Fine. Who sells seed, fertilizer, fuel, and crop insurance for BTC?’ I’m not saying this is impossible forever; just that it will take quite a long time to accomplish.
There is another portion of the problem that will likely be more difficult and potentially impossible to deal with: utilities. I invite you to speculate on when a city (pick one: Amsterdam, Paris, London, New York City, Sydney, Christchurch, Manila, etc.) will accept BTC as payment for their metered services. Tell me which publicly traded telecom will take BTC in exchange for the cell phone bandwidth you use. Short answer: it’s not likely to happen in this lifetime.
So, you say, ‘Well, what about all the businesses now accepting BTC?’ To which I reply, ‘The owners are either holding the BTC hoping for future valuation increases, they have found a supplier that accepts BTC, or they are gambling on one of the exchanges, converting to fiat to pay the bills.’
I’ve read that BTC should be regarded as a store of value, much like gold. I partially agree with that. The early adopters will wholeheartedly agree. Just exactly what is the value is a good question. One BTC is valued at one BTC. But, it isn’t likely that you can take your one-ounce bar of .9999 gold into the local utility office and pay your electric bill.
None of what I have written should be viewed as an attempt to discourage, or disparage, those who wish to promote the expansion of BTC. Instead, what I aimed to do was describe the obstacles that I see in words that most everyone will understand.
Those of you who are waving the BTC flag and beating the drum loudly, I salute you. Extolling the virtues of BTC is a fine thing to do if you are a holder, intend to be a holder in the future, or just plain hate the idea of central banks. Just understand that your fight is not over until you have converted the entire supply chain to BTC. You know, the chain with the very, very, long tail.
Until then, our everyday life is denominated in some fiat.
/Frank
