Five Reasons Why Bitcoin is Here to Stay
A major issue hindering Bitcoin is uncertainty about its future. The debate is over whether Bitcoin will be a successful long run innovation or fizzle out like so many prior innovations.
It is possible to make a relatively accurate prediction about the future of Bitcoin by analyzing five factors successfully used by technology adoption experts for decades: relative advantage, compatibility with other innovations, experience through trialability, complexity and observability.
These factors, derived from the classic work of innovation diffusion theorist Everett Rogers, when combined with features unique to Bitcoin, suggest that Bitcoin is here to stay..
Relative advantage in the field of innovation is defined as the improvements of a product as compared to its predecessors. Improvements include, but are not limited to, economic or social advantages measured in time, convenience, satisfaction or monetary benefits.
Specific examples could be better service, consolidation of multiple functions into one tool, empowerment of users, improved interface, increased productivity, reduced user effort, saving money, saving space or storage and saving time.
A major advantage Bitcoin has over other payment systems is that Bitcoin has a decentralized ledger. A decentralized ledger means that a single party is no longer in control of the records of previous transactions. A centralized ledger has vulnerabilities that a decentralized ledger doesn’t have.
Another advantage Bitcoin has over its predecessors is lower transaction costs. Other payment systems have to go through a third-party as previously mentioned. Bitcoin is decentralized so there are no third-party transaction costs, meaning lower costs to merchants and less expensive remittances sent abroad. Global users without access to traditional bank accounts may also benefit.
Bitcoin users, unlike users of more traditional currencies, do not have to be concerned about inflation eroding the value of their currency as Bitcoin will only ever issue 21 mln coins. Inflation is created when the central bank issues more paper money usually in an effort to combat recessions. Offsetting these advantages is a current lack of ease of use, as Bitcoin transactions in payment systems are limited in many regions.
Compatibility is defined as an innovation that requires an adopter to make few, if any, alterations in their lives in order to use the innovation.
A compatible innovation is consistent with past experiences and needs of adopters. For example, one reason the iPhone was a success was that customers had many devices that performed the same functions as the iPhone. The iPhone just incorporated all of those functions.
It appears that Bitcoin is a compatible innovation. An adopter only requires the use of a cell phone with Internet service in order to gain access to Bitcoin. An adopter doesn’t require any alterations in his or her life in order to use Bitcoin.
This characteristic refers to the degree in which the innovation can be experienced firsthand on a limited basis. Bitcoin access has rapidly evolved since the original Nakamoto paper.
Today, digital currency ATMs are rapidly expanding in many locations, offering novice users the option to buy and sell small amounts of Bitcoin and other currencies at a user-friendly ATM.
Exchanges are also more numerous and allow users to participate in the digital currency arena with small investments often using a credit card. Direct purchases using Bitcoin are less common but are increasing in many countries.
Rogers’ research indicated that innovations that were simpler in nature had a greater chance of success than more complex innovations. This does not necessarily mean that an innovation has a simplistic underpinning, but rather that an innovation can be readily understood and is user-friendly for the target audience.
In the case of Bitcoin, the underlying Blockchain programming is very sophisticated, but consumers who are familiar with the Internet, graphical user interfaces and mobile banking can easily grasp the consumer end of the Bitcoin transactions.
A combination of technologies makes the Bitcoin transactions less intimidating for even novice users. Still, some users may be reluctant to adopt Bitcoin without understanding the underlying framework.
Observability is defined as an innovation whose benefits are apparently obvious to non-users of the innovation, for example, the vacuum cleaner versus the broom.
The observability factor in relation to Bitcoin is less clear. In the United States, Bitcoin can only be used as a medium of exchange in limited places making it hard to be observed.
However, there are countries such as Japan where Bitcoin can be used as a medium of exchange more easily and has more opportunity to be observed.
In addition, Bitcoin has been discussed more and more often in the news, leading to more information about benefits to potential users.
Bitcoin is not the only cryptocurrency on the market. Other imitators such as Ethereum have appeared and corporate interest in digital currencies has increased. It could be argued that the imitators might ultimately outcompete Bitcoin and render it irrelevant. This happens when an imitator is clearly superior. However, the emergence of imitators is an indication competitors believe that cryptocurrency is here to stay.
Bitcoin is a virtual currency and existing monetary regulations haven’t quite caught up to it. More and more countries are applying previous regulation to Bitcoin or creating new regulations specifically for Bitcoin. This is another sign that digital currency is more than a passing fad.
In some areas, Bitcoin could replace real currency for several reasons. There are areas in Africa where the banking system is not well developed. Bitcoin just requires a cell phone and Internet access and it could easily become a de facto banking service. In addition, in many countries, citizens generally view the government backed currency as unreliable for various reasons, such as corruption or a poor economy. They may turn to Bitcoin because due to its decentralized nature, it isn’t subject to the effects of corruption or a poorly managed economy.
So yes, Bitcoin is here to stay
It seems likely that Bitcoin is an innovation that is here to stay rather than just a fad. Factors such as relative advantage, compatibility and trialability argue strongly in favor of Bitcoin adoption.
Complexity and observability factors offer weaker support at the present time, but as digital currencies continue to attract attention, these factors should more strongly favor Bitcoin adoption. Based on these five factors, it seems that Bitcoin is probably here to stay.
If other factors such as emerging competitors, regulation and global expansion are also considered, then Bitcoin is still more likely than not to be a lasting innovation.
By Jennifer Moffitt.
Disclaimer: Jennifer Moffitt is a privately practicing attorney located in Cheyenne, Wyoming specializing in regulation and compliance with respect to digital currency. She has a Bachelor’s Degree in Economics from the University of California, Berkeley and a Masters in International Studies from the University of Otago in New Zealand.