and the Problem with Existing Currencies
The greatest hindrance to
the adoption of Bitcoin is the issue with the widespread use of national currencies
in the contemporary economy. For all intents and purposes, everybody on the
planet is utilizing cash or electronic forms of it. Consequently, the choice to
utilize Bitcoin is the choice to quit using cash. The issue is that there are
significant transaction cost and switching cost associated with Bitcoin.
Switching costs allude to any cost required to progress from
national currencies to Bitcoin. These incorporate the need to retool
distributing and programmed teller machines; to refresh menus and exchange
records; and even to figure out how to think and ascertain record-keeping. On
the off chance that Bitcoin is to have any expectation of replacing a national
currency, the benefits of using Bitcoin must be adequately better to warrant
the cost of switching over.
The adoption of
Bitcoin is also limited by the upon the aggregate number of those utilizing it.
For example, the US dollar is valuable because it acts as a widely-accepted
medium of trade. A medium of trade is valuable just to the degree that one’s
exchanging partner will acknowledge it. Besides, when one is picking between
different currencies (or would-be currencies), its reliability depends on its
history. What follows is that trading partners will coordinate to make a system
of exchange that utilize this currency work. Hence, regardless of whether
Bitcoin warrants the expenses of exchanging, it should likewise be adequately
superior to anything an incumbent currency can offer, in order to warrant the
expenses of coordination.
The problem with
existing currencies is exacerbated by the fact that virtually all national
currencies are government sponsored. These currencies typically benefit from
some form of legal-tender status and public adoption. It is thus going to be an
arduous path for Bitcoin to receive greater adoption. Government-sanctioned currencies
additionally allow national banking authorities to conduct fiscal and monetary
policy, produce seigniorage income, and control monetary transactions via
regulatory oversight. To the degree that Bitcoin contradicts the role of
banking authorities to a great extent (i.e., leading currency-related
arrangements, raising capital, preventing illicit exchanges or extortion, etc.),
it may be liable to administrative regulation and discourage trading partners
from receiving Bitcoin as compensation. Surely, some governments, such as that
of China, officially found a way to boycott or control Bitcoin via intense
supervision of the internet, the ability of Bitcoin in providing an alternate
governance leaves a sufficient degree of ambiguity.
The usage of
Bitcoin will neither be legally sanctioned nor banned for years to come. Just
as the Prohibition era, Bitcoin may see its light some years ahead, or be
completely abandoned as a result of legal sanctions. Regulatory institutions
thus have a significant influence in raising or lowering the transaction cost
of Bitcoin adoption. As much as Bitcoin is promoted by technology evangelists
to be the next stage in human governance and economic exchange, we should not
ignore the pragmatic limitations – an economy’s regulatory institutions,
political environment, and judiciary system all have a part to play.