Loss of Faith in USD
One argument for the increased interest in Bitcoin is the loss of faith in the US dollar. This lack of trust can be attributed to several factors, such as the Federal Reserve’s extensive money printing between 2020 and 2021, which led to fears of inflation (Mazzoleni, 2021). Additionally, increased Anti-Money Laundering (AML) and Know Your Customer (KYC) restrictions have made it more challenging for people to access traditional financial services (Ravazzolo & Sornette, 2021).
Fiat Banks’ Failures
Another reason people are turning to Bitcoin is the failure of fiat banks to hold a high amount of liquidity and survive economic declines. The recent collapse of Silicon Valley Bank serves as an example of this vulnerability. Moreover, concerns about potential tyrannical rule and the implementation of social credit scores that could limit access to financial services on the basis of what the government deems as ‘unsociable’ behavior have further fuelled interest in decentralized options like Bitcoin (Tapscott & Tapscott, 2016).
Bitcoin Trilemma
Bitcoin advocates, also known as “maximalists,” often argue that once the scalability issue is resolved, Bitcoin will become the ultimate international currency. They contend that the trust in Bitcoin has grown due to its security, as it has never been hacked, and its hard cap, which prevents money expansion abuses (Antonopoulos, 2016).
Anti-Bitcoin Payment Solution Arguments
Despite these arguments, some critics assert that there isn’t consumer demand for payment in Bitcoin. They point to the existence of other electronic means of value transfer, such as mobile minutes, which have not achieved mass adoption (Maurer, Nelms, & Swartz, 2013). Additionally, they argue that other cryptocurrencies like Solana have addressed scalability issues but still have not reached widespread use.
El Salvador’s Bitcoin Dilemma
In 2021, El Salvador implemented Bitcoin as its legal national currency, demonstrating that governments see the potential benefits of using BTC as a payment system. However, this experiment was short-lived due to the Chivo wallet’s scalability issues on the Lightning Network (Auer, Cornelli, & Frost, 2021). The Lightning Network had to be scaled to a third layer using the Algorand blockchain, but latency issues led to the Chivo wallet becoming custodial, losing trust among users and merchants. This situation highlights the demand for BTC as a payment system at a governmental level.
Tectum Team’s Conviction
The Tectum Team believes that the lack of mass adoption of a Bitcoin payment services system is due to its scalability issues, such as transaction speed and cost. They also argue that other cryptocurrencies like Solana haven’t achieved mass adoption because they are not as decentralized, have experienced numerous outages and therefore haven’t gained as much trust as Bitcoin.
Scalability Issues in Bitcoin and Other Cryptocurrencies
Transaction Speed and Cost
The Tectum Team highlights the fact that the slow transaction speed and high cost of Bitcoin transactions are major factors preventing its mass adoption as a payment system.
Decentralization and Trust
Additionally, they argue that cryptocurrencies like Solana have not reached mass adoption because they are not as decentralized as Bitcoin, and thus have not gained the same level of trust.
The Wallet Problem
Binance CEO’s Perspective CZ, the CEO of Binance, recently stated that the hardest problem in cryptocurrency is the wallet (Zhao, 2021). Wallets can be challenging to use and require long alphanumeric codes unfamiliar to the general public, creating a barrier to entry.
The Circular Argument: Bitcoin as a Store of Value
The Source of Value and Utility
The argument that the general market now and in the future will only see Bitcoin as a store of value is inherently circular. For a commodity or currency to be seen as a store of value, the concept of value must be presupposed. This value must be sourced in a utility or purpose. If Bitcoin has no purpose other than being a store of value, it eradicates its source of value.
The Role of Perception in Value
The only basis on which to believe that Bitcoin is being seen as a store of value is that people also believe it does or will have some utility outside of its storage capacities (Yermack, 2015).
The Role of Scalability in Payment Adoption
Comparing Bitcoin, USDT, and Ethereum
Furthermore, if cryptocurrencies were exclusively perceived by the general public as a store of value rather than a means of exchange or payment, we would expect the ratio of transactions to holding between slower, more expensive cryptocurrencies and faster, cheaper ones to be relatively similar when adjusted for trust bias. However, we observe the opposite: Bitcoin’s market cap is more than six times higher than that of USDT, yet USDT’s transactions and circulating supply are over 4,000 times greater than Bitcoin’s, despite Bitcoin being more trusted and secure.
Transactions, Holding Percentage, and Trust Bias
“USDT’s transactions and circulating supply is over 4,000 times greater than Bitcoin’s”
This statistic supports the argument that the scalability of cryptocurrencies or Bitcoin payment services is the primary factor hindering their use as payment solutions, rather than a lack of market demand.
The US Dollar Peg and Trust
In response, one might argue that the higher circulating supply of USDT is due to its peg to the US dollar, which creates trust based on the perceived reliability of the dollar. However, this argument can be countered by noting that Ethereum, which is less scalable than USDT but more so than Bitcoin and not pegged to a fiat currency, has ten times the circulating market supply of Bitcoin. The fact that Ethereum has a significantly higher circulating market supply compared to Bitcoin, despite not being pegged to a fiat currency like USDT, supports the argument that scalability plays a crucial role in the adoption of cryptocurrencies as payment solutions.
Bitcoin Payment Services: The Softnote Solution
Clear evidence supports the demand for cryptocurrency, particularly Bitcoin, as a payment solution, and the market urgently needs a Bitcoin scaling solution, as Michael Saylor stated (Saylor, 2021). The Tectum Team believes they have developed the ultimate solution to the problems highlighted in this article with the Softnote.
The Softnote derives credibility from the Bitcoin system, as it transfers Bitcoin ownership. It addresses scalability issues because the Tectum blockchain, which can handle up to 1.3 million transactions and has fees close to zero, conducts this ownership transfer. Although the Tectum blockchain is new, users can settle their Softnote ownership by obtaining the private keys to the Bitcoin wallet it represents, meaning the trust needed to use the Softnote system relies on Bitcoin’s blockchain rather than the Tectum blockchain.
The Softnote also eliminates the barriers to entry created by wallets and exchanges, as it is not limited to an exchange or a wallet. People can print and exchange it like paper money, store it in an Apple wallet, send it through a messenger application, or transmit it over the phone using the Softnote serial number and its passcode.
Bitcoin Payment Services Conclusion
In conclusion, there is a growing demand for Bitcoin as a payment service, driven by factors such as loss of faith in traditional financial systems and the need for decentralized solutions. While scalability and accessibility issues have hindered widespread adoption, innovative solutions like the Softnote could help bridge the gap, allowing Bitcoin to achieve its potential as a widely used payment method.
References
los, A. M. (2016). The Internet of Money. Merkle Bloom LLC.
Auer, R., Cornelli, G., & Frost, J. (2021). CBDCs: an opportunity for the monetary system. BIS Working Papers, 114.
Hayes, A. (2021). The Crypto Trader: How anyone can make money trading Bitcoin and other cryptocurrencies. Harriman House.
Maurer, B., Nelms, T. C., & Swartz, L. (2013). “When perhaps the real problem is money itself!”: The practical materiality of Bitcoin. Social Semiotics, 23(2), 261-277.
Mazzoleni, M. (2021). Money: A History. Reaktion Books.
Ravazzolo, F., & Sornette, D. (2021). Anti-Money Laundering and Bitcoin Adoption. Ledger, 6, 43-62.
