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Chris G. Williams Beware: I mix tech and personal interests here.

Are Cryptocurrencies Ready For Mainstream Use? Are we?

 

I'm a big fan of the major cryptocurrencies like Bitcoin (BTC) and LiteCoin (LTC). I’m not really paying any attention to the dozens of derivative (and in some cases satirical) alternatives, such as Dogecoin and Coinye, but I think Bitcoin and Litecoin have a real shot at permanence.  

Having said that, do I think they are ready for prime time, mainstream use? Not yet, and here's why...

Cryptocoins have no intrinsic worth. In other words, they hold no value of their own. At this time, the only way *most* people (i.e. the non-enthusiast layman) can assess the value of 1BTC is by comparing it to another more established currency, like USD, EU, GBP, etc. There's simply no other way to describe it to someone else.

"But wait," I hear you argue... "I can tell the value of a Bitcoin by looking at how much someone charges for something, in Bitcoin."

This is true, however, it's also misleading. The only way this is of value is precisely BECAUSE you know the intrinsic value of what you're buying in your native currency.

Looking online, you know that you can buy a $50 Amazon Gift Card for 2.2047LTC. Therefore you can puzzle out the value of 1LTC as being a little under $25, but you're still just trading one currency for another. You know exactly what LTC is worth, because the intrinsic value of what you are buying is printed on the item.

How about something a little more abstract? If you don't know a lot about Bitcoin, or follow it regularly, would 250 apples for 1BTC sound like a good deal to you? How about 500? If it were 250 apples for $1, you'd jump on it... because you know exactly what $1 is worth. (Hint: at Bitcoin’s current valuation of roughly $900, it would be a really bad deal for the buyer.)

To take it a step further, cryptocurrencies in general are an unstable bunch. If you don't know what it's worth, and you don't know what it can buy, and you don't know it's value on any given day (or hour) then you are at the mercy of the seller at the time of purchase. This isn’t as big of a deal when buying tangible product, face to face, especially if you like to haggle. But what if you are buying digital product, with a digital currency, via an internet connection to a “faceless” website? You either accept the price, or you don’t. There’s nobody to argue with.

Unlike our U.S. Dollar, there are no printed or minted practical denominations of BTC. Sure you can buy a 1BTC coin, but with current prices hovering around $1000 per BTC, how would you spend it? Most things you would buy are in incredibly small fractions of Bitcoin.

Don’t believe me? Here’s another example: Let’s say you bought 1 Bitcoin at a bargain price of $800. A week later, it’s worth $950. Yay!! Thrilled with your windfall, you decide to purchase a $50 Amazon Gift Card later that day. Unbeknownst to you, China has decided to ban the Bitcoin exchanges (temporarily, it turns out) causing a momentary plummet in the value of 1BTC. Let’s say it’s now worth $400 (this is based on reality.) Had you purchased the gift card when your Bitcoin was worth $950, it would have cost you .05266BTC. Now it will cost you 0.125BTC. Doesn’t seem like a huge difference, but when the Bitcoin market stabilizes a couple days later, going back to approximately $900 for 1BTC, can you tell me how much you spent on that $50 gift card?

So how do we solve this problem?

How do we make BTC/LTC mainstream? How do we assign an easily understood value to a volatile currency with no physical backing?

We start by getting more and more companies to accept it. While this sounds counterintuitive, think of it like this... as a child (and with some adults), you have no perception of the value of money until you begin to see what it can buy and how hard it can be to come by. So, the more people see it, and what it can buy, the better appreciation they'll develop for its value. This will increase consumer comfort in using it. This is just a start, of course.

Another step in the right direction is to make it easier to acquire. This doesn’t mean making it cheaper, or devaluing it. Market pressure will (and should) drive that. I’m talking about the actual process of buying any cryptocurrencies. It’s getting better, but I remember buying $150 of LTC just a few months back, and it was a multiday process that involved trips to my ATM, a Western Union machine, multiple websites, and a lot of waiting and internet shadiness that ended well, but would certainly scare off the casual, less committed user.

It’s getting better.

Go take a look at overstock.com, for example. They've recently started accepting Bitcoin for everything they offer. That's a huge step in the right direction, but it’s not enough. We need more stores, big ones, to make it mainstream. Most of the retail websites you see today that accept cryptocurrencies don’t look like the type of business you’d feel comfortable giving your credit card to. Fortunately, you don’t have to.

Ultimately, like any technology, passionate early adopters will take on most of the risk (and reward) of cryptocurrencies. Do I think we’re there yet? No. Do I think we’ll get there? Yes.

If you’re interested, drop a few bucks and buy some. You don’t have to buy a whole Bitcoin or Litecoin to get started, and even if you don’t spend it, you can watch the exchange charts and see the value go up and down like stocks… only better, because you can’t spend stocks.

Posted on Tuesday, January 14, 2014 2:43 PM bitcoin , litecoin , cryptocurrency , financial | Back to top


Comments on this post: Are Cryptocurrencies Ready?

# re: Are Cryptocurrencies Ready?
Requesting Gravatar...
What about the transaction limit or number of exploits against the Bitcoin protocol? Not to mention, wait time for confirmations, etc.

Plus, Overstock and almost every other merchant "accepting Bitcoins" is really just getting USD from an exchange like BitPay or Coinbase. They're not dealing with bitcoin at all.
Left by Nick Olson on Jan 14, 2014 4:29 PM

# re: Are Cryptocurrencies Ready?
Requesting Gravatar...
Hi Nick, I agree that Overstock is totally cashing them in for USD, but they are still providing a place to spend them. I would argue that consumer confidence in a site like Overstock.com is probably higher than Joe Nobody's www.WeTakeBitcoin.com store. The end result is still a broader acceptance of the currency.
Left by Chris G. Williams on Jan 15, 2014 9:27 AM

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