Two systems, one winner: Why Bitcoin will usurp fiat as the world’s medium of exchange
Bitcoin faces the same prospect: when it is established as the preeminent medium of exchange, there will no longer be any criticism left to prove wrong.
by Nik on 03 Aug 2021
When the critics say Bitcoin will never be a fully-fledged medium of exchange, they are living in the past. Sure, when Bitcoin burst onto the world stage it was unwieldy and unsuitable as a currency. Transactions took too long to record on the blockchain, making it too cumbersome for most day-to-day purchases.
But the inevitable development of Layer-2 infrastructure such as Lightning Network and Liquid has changed the game. Bitcoin now supports near-instantaneous micro-transactions, making it perfect for a range of consumer and business applications, from retail to payroll settlement.
If there’s one ‘killer app’ that will drive Bitcoin’s adoption as a medium of exchange, however, it’s privacy.
Some might be happy to be constantly tracked and categorised by everyone from government agencies to digital marketers. But most people’s opinion changes when they encounter concepts like consumer-specific pricing, which raises the price of items depending on how much you’re willing to pay, or dictates the interest rate you’re offered on a loan. Ordinary people are well aware that ‘free’ services like social media require them to sacrifice their privacy. When the cost is financial, however, self-sovereignty and privacy suddenly becomes much more attractive.
Does this mark the beginning of the end for fiat? Far from it. What’s actually going to happen is far more interesting: Bitcoin will supplant fiat in applications where privacy and self-sovereignty are paramount. As consumers become increasingly aware of how relentlessly they are tracked and often cheated by modern commerce, Bitcoin provides a way for ordinary consumers to fight back.
That’s not the only reason for Bitcoin’s ascendancy as a medium of exchange. Just as important are its business applications - for example, by providing secure, uncensorable transactions, or reducing the costs and complexity of international transfers.
Bitcoin and fiat are often painted as being at war with each other for market share; in reality, though, the two systems must learn to live together. Rather than one ‘winner’ emerging, we’re much more likely to see the creation of two parallel economies, fiat and Bitcoin, with everyone free to choose the system that suits them best. That’s how Bitcoin becomes supreme: not by killing the competition, but by offering a fundamentally different model of transferring value through time and space - and letting the market decide.
It’s disappointing that critics refuse to see how Bitcoin is constantly evolving and developing new utilities all the time. We don’t have to play that game, though. Our message stays the same: We are Bitcoin, and we come in peace. We don’t want to eliminate fiat currency, only to make money better by offering an alternative where fiat does no favors for ordinary consumers.