The Future of Cryptocurrencies: Can Bitcoin Become a Daily Currency?
Bitcoin, the world’s first cryptocurrency, has come a long way since its creation in 2009. Originally seen as a niche experiment, Bitcoin has evolved into a global financial phenomenon, with a market capitalization exceeding $600 billion in 2024. However, despite its growing prominence as an investment asset, Bitcoin has yet to achieve widespread use as a daily currency for everyday transactions. The question remains: Can Bitcoin transition from being a speculative asset to becoming a practical medium of exchange?
In this article, we’ll explore the current adoption trends, challenges with price stability, and the changes needed for Bitcoin to become a mainstream currency.
Current Adoption of Bitcoin by Businesses
In 2024, Bitcoin’s adoption as a payment method has grown steadily, but it still has a long way to go before becoming a widely used currency. Major companies like Tesla, Microsoft, and AT&T now accept Bitcoin for certain transactions, and payment processors like PayPal and Stripe have integrated cryptocurrency options into their platforms, making it easier for consumers to pay with Bitcoin. Additionally, companies like BitPay and Coinbase Commerce have made it simpler for smaller businesses to accept Bitcoin payments.
For example, Overstock.com has been accepting Bitcoin since 2014, and in 2024, the online retailer continues to see steady growth in cryptocurrency transactions. However, despite these advances, the vast majority of day-to-day transactions, from buying groceries to paying rent, are still conducted in fiat currencies like the U.S. dollar or euro.
The main hurdle preventing Bitcoin from becoming a daily currency is its volatility. Businesses and consumers are hesitant to use a currency that can fluctuate in value by double digits in a single day. While adoption has grown, Bitcoin’s role as a payment method is still limited to a relatively small group of companies and tech-savvy individuals.
Dan Schulman, CEO of PayPal, notes: “Cryptocurrency adoption is growing, but we need more stability and scalability before Bitcoin can be used for everyday transactions. Consumers need to know that the value of their payments won’t change dramatically from one moment to the next.”
Challenges with Bitcoin’s Price Stability
Bitcoin’s price volatility is one of the biggest barriers to its widespread use as a daily currency. For example, in 2024, Bitcoin’s price saw a 20% drop within a few days due to uncertainty over global regulations. These fluctuations make it difficult for businesses and consumers to rely on Bitcoin for everyday transactions. If the value of Bitcoin changes significantly between the time of purchase and the time of settlement, it creates uncertainty and risk for both parties.
By contrast, fiat currencies like the U.S. dollar, euro, and yen are relatively stable, which makes them reliable mediums of exchange. While inflation and economic policies can affect fiat currencies over time, their day-to-day value remains much more predictable than that of Bitcoin.
Experts believe that Bitcoin’s volatility will need to decrease significantly for it to be used as a daily currency. Stephen Pair, CEO of BitPay, argues: “Bitcoin’s volatility has improved over the years, but it still needs to stabilize further for it to be widely adopted as a daily currency. As more institutional investors enter the space and as regulation becomes clearer, we expect to see less volatility in the long run.”
However, some proponents of Bitcoin argue that its volatility is a temporary issue that will diminish as adoption grows and the market matures.
Bitcoin vs. Fiat Currencies: Can It Compete?
For Bitcoin to compete with fiat currencies as a practical medium of exchange, it must address several key challenges: transaction speed, scalability, and fees. Fiat currencies are backed by governments and central banks, which gives them stability and legal recognition. Transactions in fiat currencies are also fast and efficient, especially with modern digital payment systems like credit cards, mobile payments, and instant transfers.
Bitcoin, on the other hand, faces issues with transaction speed and scalability. The Bitcoin network can only process about 7 transactions per second, compared to Visa, which processes around 1,700 transactions per second. This limitation creates bottlenecks during periods of high demand, leading to slower transaction times and higher fees.
Additionally, Bitcoin’s decentralized nature means that it operates outside of government control. While this is one of Bitcoin’s key attractions, it also creates challenges when it comes to regulation and legal recognition. Governments around the world are exploring how to regulate Bitcoin and other cryptocurrencies, with some countries, like China, taking a more restrictive approach.
Competing with fiat currencies also means competing with central bank digital currencies (CBDCs). Many governments are developing their own digital currencies, which could offer the benefits of digital payments while maintaining the stability of fiat money. The digital yuan in China and the digital euro in the European Union are examples of CBDCs that could challenge Bitcoin’s role as a daily currency.
Christine Lagarde, President of the European Central Bank, has said: “CBDCs offer the advantages of digital payments while maintaining the stability and trust of government-backed currencies. While cryptocurrencies like Bitcoin have their place, CBDCs may become the preferred digital currency for everyday transactions.”
What Needs to Change for Bitcoin to Become a Practical Medium of Exchange
For Bitcoin to transition from a speculative asset to a mainstream currency, several changes need to take place:
- Volatility Reduction: Bitcoin’s price volatility must decrease for it to be a viable medium of exchange. This could happen as more institutional investors enter the market, increasing liquidity and reducing price swings. Additionally, the development of Bitcoin-backed stablecoins—cryptocurrencies that are pegged to the value of fiat currencies—could help stabilize Bitcoin’s value for transactions.
- Technological Improvements: Solutions like the Lightning Network, a Layer 2 protocol built on top of the Bitcoin network, aim to solve scalability issues by enabling faster and cheaper transactions. The Lightning Network allows transactions to be processed off-chain, reducing congestion on the main Bitcoin blockchain and making small, everyday transactions more feasible.
- Regulatory Clarity: Governments need to establish clear and consistent regulations for Bitcoin and other cryptocurrencies. Regulatory clarity would help businesses and consumers feel more confident using Bitcoin for everyday transactions, knowing that there are legal protections in place.
- Consumer Protection: As Bitcoin adoption grows, there will be a greater need for consumer protections to prevent fraud and ensure the safety of digital wallets. Secure infrastructure, along with education on best practices for using Bitcoin, will be critical for mainstream adoption.
Expert Opinions: Will Bitcoin Become a Mainstream Currency?
Opinions on whether Bitcoin can become a mainstream currency vary widely. Some industry experts are optimistic that Bitcoin’s role as a daily currency will grow, while others believe that it will remain primarily a store of value.
Jack Dorsey, CEO of Block (formerly Square) and a well-known Bitcoin advocate, believes in Bitcoin’s future as a daily currency: “Bitcoin is the future of money. With innovations like the Lightning Network, we’re getting closer to a world where Bitcoin can be used for everything, from buying a coffee to paying rent.”
On the other hand, Nouriel Roubini, Professor of Economics at NYU Stern School of Business and a longtime critic of Bitcoin, remains skeptical: “Bitcoin’s volatility and lack of intrinsic value make it unsuitable for everyday transactions. It’s more likely to remain a speculative asset rather than a practical currency.”
Ultimately, the future of Bitcoin as a daily currency will depend on how well it can address the challenges of volatility, scalability, and regulation. While Bitcoin has made significant progress in recent years, there is still much work to be done before it can compete with fiat currencies for everyday use.
Conclusion
Bitcoin’s journey from a niche digital asset to a global financial phenomenon has been remarkable. While it has gained significant traction as a store of value, its potential as a daily currency remains uncertain. For Bitcoin to become a mainstream currency, it will need to overcome challenges related to volatility, scalability, and regulatory clarity. Innovations like the Lightning Network and the development of stablecoins could help address these issues, but the path to widespread adoption will be long and complex.
As we move further into 2024, the debate over Bitcoin’s future as a daily currency will continue. Whether it ultimately succeeds in becoming a practical medium of exchange remains to be seen, but one thing is clear: Bitcoin is here to stay, and its role in the global economy will continue to evolve.
