Amid hyperinflation, demonetization and weakening fiat currencies, Bitcoin is experiencing real world demand. It may be said that in the last twelve months, Bitcoin has increasingly played a vital role in today's global economy. But does this mean it's on its way to becoming a global currency?
Global demand for Bitcoin keeps increasing
In November 2016, India's government announced that they would be banning two of the country's biggest banknotes, the Rs 500 and Rs 1,000, in a bid to target so-called black money. As a consequence of the country's demonetization, demand for alternative assets increased, one of which was Bitcoin. So much so, that just a few days after the country's move to demonetize high-value currency notes, Google inquiries into the purchase of Bitcoin increased by 20-30 percent.
China too has seen an increase in demand for Bitcoin. At the end of last year, China restricted the importation of gold in order to prevent the devaluation of the yuan, making Bitcoin a highly sought-after asset for investors.
Whereas in Venezuela, the country's hyperinflated national currency, the bolivar fuerte, is forcing residents to consider their options when it comes to purchasing items. With the Venezuelan bolivar declining each day, more people are utilizing Bitcoin to purchase things such as medicine.
Through these examples and the fact that Bitcoin recently reached an all-time high of $1,442, surpassing its previous all-time high of $1,350 at the beginning of March, it indicates that Bitcoin is steadily gaining real world value that could soon see it become mainstream.
Bitcoin has matured out of the volatility
Speaking to Cointelegraph were Nicolas Cary, co-founder and president at Blockchain.info, and David Motta, investor and CEO of ACQURE Business Solutions, a business consulting firm.
Cary says that with transformation things tend to take place slowly and that even though we're in the early stages of transformation with Bitcoin, we can already see the impact this technology is producing on individuals and industries around the world.
He explains to Cointelegraph:
"Over the past twelve months alone, Bitcoin has matured out of the volatility that has defined the currency to date. It has become a viable investment asset and we've started to see meaningful adoption on a personal level."
However, while Motta believes that fiat currencies will remain in the future, he thinks that governments will learn to adapt and implement digital currencies as part of how money is transacted.
"What governments have to lose is the complete control of money," he says. "I believe that just like the masses will eventually be forced to adapt to cryptocurrency, governments will also be forced to adapt and accept cryptocurrency as the next evolution and that it will be part of every nation."
How it's being adapted with other nations can already be seen in countries such as Nigeria and China where remittance payments come with significant fees through traditional money transfer services such as the Western Union or WorldRemit. It's also becoming the most promising technology for the unbanked and underbanked populations and could reach a vast majority of millennials who don't trust banks.
"Bitcoin has many advantages, which has led to its impressive growth," said Cary. "Among them is its distributed and global nature, which provides greater stability in the face of geopolitical crisis and its accessibility, which allows for the financial inclusion of billions across the globe who are excluded from the incumbent financial model."
Will altcoins trump Bitcoin?
Yet, with debates circulating Bitcoin's potential hard fork and the high fees it charges to transfer transactions unlike other digital currencies, could Bitcoin's rivals remove it from the top spot?
Motta states that anytime there is a high demand for something people will charge a premium for it:
"This is good news for other currencies as they make their way into the consumer's eyes looking for potential long term gains."
Ethereum, which has a market cap value of just over $7 bln and is the second most valued cryptocurrency, could potentially outpace Bitcoin. With one Ether surpassing $80 for the first time on Monday, the currency is one contender that could outpace Bitcoin.
Another altcoin to consider is Dash. Whereas Bitcoin is struggling with its transaction backlog, taking up to an hour to confirm a transaction, Dash is quick with instant transactions taking less than a second. Furthermore, Dash also solves Bitcoin's privacy issue, which could help pitch it ahead of Bitcoin. While this may not be a disadvantage to Bitcoin at the moment, if governments want to look into what people are doing, there is some chance this could be achieved through Bitcoin.
Of course, while Bitcoin is the most valued cryptocurrency on the market, its power structure may not be enough to let it adapt. Bitcoin can only succeed if its power elements such as miners, mining pools, exchanges, nodes, etc., work together.
While the current structure may need looking into, Cary believes it can be improved on.
"I believe you want a financial system to be stable," he said. "The current structure ensures that stability by making changes [is] hard – though not impossible – to implement."
Another important point to look at is the fact that as the Bitcoin mining network grows, so too does the amount of electricity needed to confirm transactions. At the moment, it's estimated that by 2020, Bitcoin mining could consume 14,000 megawatts of electricity. This is comparable to all of Denmark's consumption.
Even though Bitcoin is the most popular digital currency on the market, is it the best option for mass adoption across households if it will increase electricity use compared to existing financial services?
It can be assumed that new and existing altcoin are learning from Bitcoin, which will help them produce a more sustainable alternative for mass adoption.
"I believe Bitcoin is already the next big currency, but I also believe many other cryptocurrencies are positioning themselves to be adopted by the masses," states Motta.
An interesting race ahead
At this point in time, banks and governments have plenty to lose while the Bitcoin community has a lot to win. Banks and governments benefit from fiat money, but even if they give the benefits back to the people, they won't hand over the power. Ultimately, this will make digital currencies more attractive.
Whereas TV stations and newspapers were once considered the “banks” where you could only find out what's going on in the world in a centralized, organized and censored fashion, now you can do so by watching a YouTube video that can reach millions worldwide. How information is disseminated, is changing.
So too is how we consider money and where it comes from. The monopoly from big banks will shift as the masses realize they have the power to create structures independently.
Cary concludes:
"My perspective is that we will see a rich digital ecosystem that includes Bitcoin, other cryptocurrencies and central bank-backed digital currencies working alongside each other."