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Let’s be honest, Bitcoin isn't a currency. Even as the price has settled this year, it’s still just too volatile to act as such. When you use dollars to buy a cup of coffee, you and the coffee shop both understand that the value of the dollar will stay the same between the time you order and the time the business receives the money. Each side agrees, $2.50 equals one cup of coffee.
With Bitcoin, we still don’t have that luxury. In the vacillating world of BTC, $2.50 could equal $2.51 a few seconds later. You’re surcharged for the payment, and if the network happens to be busy, the confirmation of the transaction could take hours. In addition, given the exchange rate, you’re dealing with minuscule denominations. If you’re paying for a $2.50 coffee, that’s the equivalent 0.00032 BTC – and that exchange rate will inevitably have changed by the time this article is published and you’re about to read it.
So, definitionally, if we’re talking about the status of Bitcoin as a currency, it fails on two fronts: it’s not a stable store of value, and it’s also not an ideal medium of exchange. This certainly isn’t what Satoshi had in mind a decade ago. In the inventor’s own words, Bitcoin was “A Peer-to-Peer Electronic Cash System”. Bitcoin was “e-currency”. Bitcoin was “money”.
But equally, Satoshi hadn’t approached his creation with rose-tinted glasses. The shortcomings of the technology and its practical application were well-understood. Satoshi never planned it to be an immediate replacement for fiat currency, and it was certainly never intended to be the final iteration of the ‘block chain’ technology. It was an experiment, more than anything. “We’re trying a decentralized, non-trust-based system,” the developer explained in a forum post from 2009.
Satoshi was optimistic, but never truly anticipated its transition into the mainstream. “It has the potential for a positive feedback loop”, he wrote in another forum post. “As users increase, the value goes up, which could attract more users to take advantage of the increasing value.” But the creator minted only 21 million tokens – in spite of Bitcoin’s divisibility, far too few to accommodate the world’s population. He or she could never have imagined that in 2017, the price of just one Bitcoin would have reached $20,000, or that the infrastructure would be under such pressure that transaction fees would exceed $50, with thousands of unconfirmed trades waiting to be processed on the network.
Satoshi could also never have foreseen the level of energy consumption tied to mining. While nobody knows precisely how much energy Bitcoin mining consumes globally, the first peer-reviewed study on the subject, published in Joule, argued that, globally, “the Bitcoin network consumes at least 2.55 GW of electricity currently, and that it could reach a consumption of 7.67 GW in the future, making it comparable with countries such as Ireland (3.1 GW) and Austria (8.2 GW).” As the paper goes on to state, “the average electricity consumed…could exceed 900 kWh per transaction by the end of 2018.” That’s roughly three months’ worth of electricity for the typical western household, all dedicated to carrying out a single transaction.
Bitcoin has its fair share of problems – that much is obvious – and considering all that I’ve stated so far, it would be easy to conclude that it has failed as a project. Most pundits do. But I don’t think all the criticism is warranted, and I would have to disagree. Bitcoin isn’t a failed project – it’s a successful start.
Bitcoin has triumphed in giving people the means to conduct transactions transparently and in a trustworthy manner without having a centralised body, such as a government, regulating each and every aspect of the transaction. As a means for transferring between value across borders, and as an asset tied to the underlying value of the blockchain, it has continued utility. And for the 2 billion unbanked in the world and for those who are struggling to deal with hyperinflation, such as Venezuela, Bitcoin has offered a solution.
It has also had symbolic success: Bitcoin has shown the financial world that there isa better way to do things. As Satoshi remarked in a post back in 2009, “A lot of people automatically dismiss e-currency as a lost cause because of all the companies that failed since the 1990's.” In many ways, that same statement can now be applied to Bitcoin. For while BTC hasn’t succeeded in its capacity as a day-to-day currency, it has succeeded in setting the stage for brilliant future projects.
Bitcoin is just the beginning and it has spawned a flourishing blockchain industry. We have successful blockchains for shipping, law, entertainment, and finance. Eventually, we’ll get to a protocol that can be called a currency. We’re not there just yet, but the goal of an easy-to-use, secure, and trustless e-currency – one that isn’t dependent on a high energy need – is surely just on the horizon.