Even though bitcoin and a number of other cryptocurrencies have been on a virtual terror, skyrocketing in value, and generating a ton of excitement and interest around the globe, there still exists a large number of doubters and skeptics.
From JP Morgan Chase CEO Jamie Dimon who has called bitcoin a fraud, to your average Jack and Joe, many people are sure, almost militantly so, that somehow the whole cryptocurrency movement is just a giant overhyped bubble that is bound to fail.
I’m o.k. with skeptics, myself often being one. That said, I think it’s always a good idea to look at the arguments for and against and put them through their paces.
One argument against bitcoin is that speculation is the only thing driving up the price.
These people believe that very few people are actually using bitcoin to buy or sell anything. That is, aside from buying and selling bitcoin, there are very few transactions using the cryptocurrency to purchase goods or services.
They also argue that using bitcoin is difficult and transaction fees are high.
In summary, there are few transactions due to the relative difficulty of use and high transaction costs.
Let’s take a look at each of these assumptions.
For starters, according to Luxembourg-based Block Chain (www.blockchain.com) the average number of daily bitcoin transactions has slowly increased throughout 2017 from approximately 300,000 per day in January 2017 to over 400,000 per day in December of 2017.
More impressively, the value of those transactions has risen from around USD 200 million per day at the beginning of the year to over USD 5 billion per day at the end of 2017.
These statistics look promising both in terms of the number of transactions and in terms of aggregate value of those transactions. However, it’s hard to differentiate transaction types between those that are simply buying and selling bitcoin vs. those that are using bitcoin to buy or sell a product or service.
We can, however, look at the number of merchants that are currently accepting bitcoin. The following are just a sample of the organisations in the U.S. are accepting bitcoin for purchases:
Expedia, Microsoft, Overstock.com, Newegg.com, Subway, WordPress.com, Gyft, Wikipedia, Reddit, Etsy, Whole Foods, Stripe, Roadway Moving Company, Apple’s App Store, Big Fish Games, Bloomberg, Dell, Fivver, Home Depot, Kmart, Sears, Shopify.com, Target, Zappos
The number of merchants accepting bitcoin in other countries is rapidly increasing as well. For example, in Japan, 300,000 merchants are scheduled to start accepting Bitcoin in exchange for goods or services in 2018. And, the number of Bitcoin ATMs globally has doubled to over 2,000 in 2017. https://www.statista.com/statistics/343127/number-bitcoin-atms/
So, while the majority of transactions at this point might not involve the purchase of goods or services, there is momentum in that direction and the balance is sure to shift as more merchants accept bitcoin and consumer awareness and confidence increases.
Lastly, it could be argued that since the value of bitcoin has been rising so rapidly, many investors simply refuse to spend what they own, using dollars or some other fiat currency for day-to-day purchases.
Now, let’s look at the degree of difficulty of using bitcoin to purchase goods or services. I was curious about this myself as I have been a buy and holder. Yesterday I went on-line and in less than ten minutes was able to both make a small donation to Wikipedia and buy an electric shaver on Overstock.com. The process was incredibly simply. I hit the “pay by bitcoin” button and signed into Coinbase and approved the transaction.
I did a little more research and found that I could also use my bitcoin wallet to simply enter another party’s or wallet address, set the amount, and hit “send.”
It’s really no more complex than other commonly used payment systems such as PayPal or using a credit card.
So how about those transaction costs? Well, for now at least stay away from the ATMs. They are charging an average of 9-10 percent per purchase or sale of Bitcoin. At this point, I feel that ATMs are more of a novelty than anything else. That will change though.
On the two on-line transactions I made, my fees were less that one percent. With bitcoin the transaction fee will depend on a variety of factors including what exchange you are using, the accepting merchants policies, and also how fast you want to process the transaction. The quicker the transaction, the higher the fee.
PayPal charges 2.9 percent plus USD 0.30 for every transaction.
And, banks, especially when it comes to foreign currency exchanges (which the use of bitcoin essentially is) can range from 2-5 percent or even more. (And oh yeah, they can charge ridiculously high and often hidden charges for ATM usage as well. https://transferwise.com/us/blog/choose-local-currency-at-foreign-atm)
Can you understand why people like JP Morgan Chase CEO Jamie Dimon want to discredit bitcoin and all other cryptocurrencies? Their ridiculous charges are going to go up in smoke as bitcoin adoption increases.
So, in conclusion, while bitcoin transactions for the purchase of goods and services may not be as high as simply buy and sell transactions, that number will most likely increase as more and more merchants accept bitcoin. Furthermore, even in today’s environment, bitcoin is an easy-to-use low-transaction-cost currency.
In my next post, I’ll explore some of the real issues that may drag on the adoption of bitcoin including government policy and tax ramifications.
Until then, keep on believing!