Many crypto-activists predict a great future for bitcoin. However, let’s be realistic, the first cryptocurrency has little chance to take a worthy role in international trade. There are a number of good reasons for this at once, which are almost impossible to overcome with bitcoin’s construction model. Let’s look at the main ones without reference to regulatory and political reasons, taking into account only the internal structure. To be fair, bitcoin also has many advantages, which we will touch on at the end of the article in the conclusion.
Oddly enough, all of the reasons we have discussed, perhaps except for one, are the main advantages of bitcoin, but they are what will keep the first cryptocurrency from taking its place in international trade.
Limited issuance.
In 2020, which was, to say the least, not the most active year in international trade, exports of goods from 125 countries alone reached nearly $17 trillion. At the same time, bitcoin’s total capitalization rarely exceeded one trillion in dollar terms. Thus, even if the price of the first cryptocurrency does reach $200,000 per coin in the near future, it will be only a fifth of the world’s trade.
Simply put, the limited issuance that the deflationary model provides will be one of the main stoppers of bitcoin’s acceptance as an international means of payment.
High volatility and low liquidity
These reasons are derived from the previous one. Now we are not talking about the current market situation, but only about the potential future.
To understand this, let us consider a model of a hypothetical company. For example, a mining company sells resources on the world market. It has its own expenses – wages, taxes, rent payments, and more. Of course, some of it can also be converted into bitcoins, but for many, it will still have to sell the resulting cryptocurrency in the free market, which means that there will be spikes in supply and demand, which will move quotes in one direction or another. This means that it will be hard to build an effective business model and forecast financial flows.
Of course, we can assume that buyers and sellers compensate each other, but as history has shown, demand is cyclical, so the cryptocurrency market will be cyclical too.
Low degree of anonymity
“Money loves silence.” That’s a common saying in business. The high transparency of the blockchain will bring the level of commercial espionage to a new, qualitative level.
Having access to the payment turnover of companies, it is easy enough to figure out the counterparties of each company. If for an individual it is not a big problem, moreover, there are many ways to increase their anonymity, then for large companies these approaches are of little use.
Thus, once you know the counterparties of a supplier, it will be easy to “take away” a share of the market, for example, price dumping. In some industries, a couple of months is enough to use this method to win orders for yourself, especially in relatively monopolistic industries.
Of course not everyone will agree with these arguments, but you have to understand that changing the existing financial system in the world requires a shock which would surpass the consequences of World War II. Although we can already see some reorganization of financial systems, it is only for some sectors and it will take decades for fundamental changes to occur.
Bitcoin has a lot of advantages, which have already allowed it to take a worthy economic role. Although the first cryptocurrency has yet to reach its full potential, it has already proven itself as a means of accumulating capital and moving value.
We intentionally do not consider the use of various quasibitcoins, i.e. derivatives, including exchange-traded instruments. It should also be taken into account that the world of cryptocurrencies is not limited to bitcoin, and other coins still have a chance to become a native means of international trade, but here it is necessary to adopt the technology by business and society as a whole.