It is still hard to find a wide selection of commerce, digital or bricks-and-mortar, to use BitCoin as a traditional currency, exchanging it for real goods and services. BitCoin’s spectacular rise in value is driven purely by speculation, but that demand is really there from people who want to buy and hold it as a gold-like asset rather than as a currency. The artificial scarcity that was built into BitCoin by its creator(s) plays a role here. Just as gold is viewed as a commodity with limited supply, and diamonds are inflated in value by monopolistic behavior that restricts supply (and really great marketing that increases their appeal), so BitCoin benefits from the idea that there are only so many of them.
BitCoin’s volatility makes it hard to rely on it as a vehicle for exchanging value, but this rapid rise in value seems destined to be unique to BitCoin.
What this demand does, though, is unfairly give cryptocurrencies as a whole a bad name. Other cryptocurrencies that may hold value more consistently (which is our goal at BitMinutes), can be tarred unfairly with the experience people have, or observe, with BitCoin. Critically, this could blunt, or at least slow, the speed with which cryptocurrencies reach their full potential in spreading financial services to the under-banked communities in emerging economies. Microloans, micro-insurance, savings and transactional accounts can all be brought to these communities far more affordably using the blockchain technologies that underpin the better-designed cryptocurrencies.
We already see some roadblocks arising against this vision, with China clamping down on cryptocurrency creation and ownership, and other Central Banks issuing less draconian but still cautionary statements.
Slowing this progress would be a shame, as the low cost of financial service delivery that cryptocurrencies can provide can make a huge difference in how quickly these communities develop.
BitCoin’s story is exciting, but in our view could prove to be an unproductive distraction to the huge underlying social benefits we can achieve through currency innovations.