Is it Possible to Make Bitcoin the Next Global Currency?

by | Jul 1, 2022 | Blog

Ever since Bitcoin was first released, the hype about it potentially becoming the next global currency has never ceased to grow. Along with it, the price of the cryptocurrency has been increasing, turning some of its early investors into millionaires.

Despite the phenomenon that Bitcoin has represented, which has led to the emergence of many other cryptos and blockchains, many people are still skeptical about whether the conditions exist to make Bitcoin the next global currency.

After all, decentralization poses many challenges to which Bitcoin does not seem to have a simple solution. Yet, whether these challenges are worth tackling to overcome many of the risks and inefficiencies of centralized currencies is a matter of debate

To understand whether it’s possible or even desirable to have a Bitcoin global currency or if it’s possible for bitcoin to become the next world reserve currency, it’s necessary to first analyze the problems that it could potentially solve in the financial system as well as the possible challenges that making Bitcoin the new world currency could bring.

Why Do We Need Decentralization?

Although money is such a regular part of our everyday lives, the mechanisms for it to function are exceptionally complex. As with any other financial asset, money has a price, which is measured in terms of interest rates and depends on multiple variables.

Today the price of money is largely determined by monetary policy from central banks. While monetary policy has since been used as an instrument to make markets more dynamic through emissions by generating aggregate demand at the cost of long-term inflation.

Cryptocurrencies were first thought of as an alternative to centralized monetary policy, as the complex processes that allow them to work can be fully decentralized, and their value is therefore determined by markets as opposed to a centralized decision-making entity. 

Can Bitcoin Become the Next Reserve Currency?

To assess whether or not Bitcoin has the potential to become the next worl’d reserve currency, we need to look at variables such as its inflationary or deflationary nature, its scalability and liquidity.

The first thing to consider in this regard is the fact that Bitcoin is a deflationary currency. Bitcoin’s deflation is evident from the fact that the coin has increased in value throughout its existence, meaning that the prices of every article “decrease” in practical terms for the people who hold the coin and use it as a currency.

Deflation is built into Bitcoin, as it’s designed to produce a decreasing number of coins as time passes. While this is seen as a positive aspect of the currency in comparison to the inflation that occurs in fiat currencies, the high price of Bitcoin could make its entry barriers too high for mass adoption.

This is of course bound to the coin’s volatility, which could be overcome in the long term as more people use the coin. The problem of volatility in Bitcoin is tied to its liquidity. The coin is currently highly illiquid because not a lot of people hold it, making it relatively hard to cash out and purchase things with.

As liquidity increases, the cost of making transactions with Bitcoin will decrease, stabilizing its value in turn. 

The lack of liquidity, however makes it difficult to just conhvert crypto into any currency to use in one’s every day life, or make easy and quick purchases.

In turn, the coin cannot be massively adopted until it’s liquid enough but cannot be liquid enough until it’s massively adopted. There seems to be no simple short-term solution.

Finally, when it comes to scalability, Bitcoin would require an update in its protocols to reduce the amount of energy required to make transactions. 

This is difficult due to the Blockchain having been built from scratch using a Proof-of-Work (PoW) consensus mechanism, which is made precisely to require high amounts of energy for validation of transactions as a way to ensure security and decentralization.

Although the risks associated with high deflation, volatility, and scalability don’t seem to be going away when it comes to Bitcoin, the real question is whether the advantages that Bitcoin provides in terms of decentralization, security, and transparency will make up for those risks.

Many industry leaders think this will be the case, such as Twitter’s former CEO Jack Dorsey, who claimed said during an interview in 2018 that “The world ultimately will have a single currency, the internet will have a single currency […]  that it will be Bitcoin.”

This assessment was made under the assumption that Bitcoin’s innovative technology and the fact that it derives value from the network effects of decentralization, could make it good enough to be the new global currency.

Because of these elements, Bitcoin’s deflation and lack of liquidity could make it useful as a type of reserve currency, rather than a currency for making fast purchases, in a similar way to how gold reserves operate.

Does Bitcoin Have a Future as a Currency?

Giving a straightforward and simple answer to this question would not make it justice. On the one hand, the risks listed above still create doubts in many institutional investors as well as common people about Bitcoin’s future. On the other hand, Bitcoin hasn’t stopped growing since its emergence and, despite a recent crypto crash, it isn’t showing signs of stopping. 

The main question, however, isn’t whether Bitcoin itself will be adopted, but the broader technology that it represents, and the changes this technology could potentially bring, not just to financial systems, but to the global economy as a whole. 

Bitcoin is a blockchain system among many emerging ones. It was a visionary proposal that showcased the potential of DLTs, and despite its shortcomings, it represents a milestone that other blockchain developers have followed to create different blockchains and cryptocurrencies with different experiences for users to choose from. 

After Bitcoin, new blockchains and cryptocurrencies such as Ethereum, Solana, and Cardano have appeared tackling the different risks and problems of decentralization in different ways, adopting unique failsafe systems, different degrees of decentralization, and different approaches to scalability.

Whether Bitcoin itself will become the next global currency is something we cannot know for sure at this moment. 

What we do know for sure is that DLT and blockchain technologies are evolving at an incredible pace, creating new exciting alternatives to traditional financial markets, and new technological solutions in multiple fields like organizations, laws, regulations, internet social media platforms, and much more.

It’s only a matter of time until blockchain becomes an increasingly prevalent part of our lives, and decentralization becomes the norm that dictates how we interact, not just financially but also in our regular everyday lives.

If you wish to find out more about the processes through which Bitcoin and other cryptocurrencies can reach the point of mass adoption, you may visit the largest event being organized about this topic, Expoverse, where hundreds of industry leaders and thousands of blockchain enthusiasts will gather to discuss the future of blockchain technologies.

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