This article is an excerpt from the book The Layman’s Guide to Bitcoin by Logan Brutsche and is republished here with permission of the author.
More than anything else, the biggest reason almost no one uses Bitcoin is because… almost no one uses Bitcoin. What good is money that no one uses? It’s called the network effect, and it’s the same thing that gives social media giants like Facebook and Twitter so much unshakable presence, and has spelled the doom of countless ambitious social media startups regardless of their technical merit.
The network effect guarantees that if some system requires massive adoption before it’s useful in any meaningful way, the users just won’t come. Any argument of value tomorrow is moot—users only care about utility today, and won’t stick around for a theoretical tomorrow. To overcome this, a new system must first offer utility that doesn’t depend on mass adoption and can’t be found on other platforms.
This has happened already in small degrees. This, combined with developer and investor interest, explains the small but steadily growing community already present. But to achieve mass adoption anytime soon, a bigger catalyst is needed.
1. Support By a Big Player
The most immediately obvious catalyst for cryptocurrency adoption is if a big player suddenly announces support for it as a payment/transaction mechanism. This big player might be some large corporation, like McDonalds, Wal Mart, or Amazon. Or it could be an entire country that wants the benefits of an “incorruptible” currency.
But it’s unlikely this will happen in the current climate. It just doesn’t make economic sense to begin accepting BTC as payment—it doesn’t result in much higher sales, because there are aren’t that many customers with bitcoin. On top of this, Bitcoin doesn’t fit easily into any legal definition of money or property, which makes it feel very risky to any large corporation.
It’s even more unlikely that a country will choose to adopt Bitcoin. Countries frequently control their money supply in an effort to direct their economy, so to adopt cryptocurrencies immune to such control would be to give up that control.
2. Adoption by the Unbanked
Today, 2.5 million adults—about a third of the world’s adult population—is “unbanked”. Unbanked adults have either no access, or extremely limited access, to the banking system and infrastructure. Many of the financial tools first-world citizens take for granted are unavailable, or extremely difficult to procure, for the unbanked. Loans small or large, savings accounts, and credit/debit cards are obvious examples.
But the disadvantage goes deeper than that. Without a bank account, one cannot invest in any stocks, buy or sell products online, or pay for any international service. Simply put, the entire international marketplace is so out of reach that it might as well not exist—for a full third of the world’s adult population.
Cell phone use is growing more rapidly. In Myanmar, for example, 50% of the population have cell phones while only 5% have a bank account. We can expect this trend to continue not just for cell phones specifically but for technology in general.
In counties like Myanmar, with more cell phones than bank accounts, individuals may become involved with cryptocurrencies before the conventional banking system is made available to them. With a mature enough cryptocurrency industry, a cell phone user could use cryptocurrencies to achieve ends similar to those offered in the conventional banking system—investment, loans, international orders, and more. It’s plausible that the unbanked might completely skip the conventional banking system, and jump right into this alternative economic platform.
These crypto-economic tools are still unrefined, but they have taken root and are improving, and may be the only realistic option for some of the world’s unbanked. If and when the individuals are motivated to begin engaging in such crypto-economic platforms, the network will start to work in the favor of cryptocurrencies, drawing more people in rather than keeping them out.
If something like this happens, the cryptocurrency industry will find itself with a huge amount of real users—people who are using it not as a programmer’s toy or investment vehicle, but for real purposes like investment and international markets. It would boost development and force the industry to refine and polish the tools being used, while also providing exactly the kind of feedback necessary for such rapid evolution.
This could plausibly happen any day—the world’s impoverished embrace cryptocurrencies in such a way as to leapfrog past the older system. If they do, they’ll help to usher in a suite of refined crypto-economic tools.
3. Significant Economic Collapse or Abuse
A darker scenario that could promote widespread adoption is that of significant economic collapse, or a government abusing their control over money so blatantly that the populace flees en masse to alternative economic platforms—one of which is cryptocurrencies.
More likely than either of these on their own is both at once—abuses by those in power push people to escape the abusive economy, which causes the value of the currency to fall, which further drives people away. This might be limited to a single country, or it might be systemic and somewhat global.
The likelihood of this scenario is impossible to pin down objectively. Naturally, a large portion of the Bitcoin/cryptocurrency community sees it as a certain eventuality; it’s why they’re so dedicated to building and engaging in an alternative economic platform in the first place.
One thing that can be said objectively is that sovereign currencies are subject to the deliberations of governments and other centralized power structures—establishments that reflect the peoples’ will, but imperfectly and to a debatable degree. These systems have a certain opacity and unpredictability as a result. To believe that this will never result in systemic economic failure is just as foolish as to be certain that it will collapse in the next few years.
If sovereign currencies do begin to collapse, people will look for the next-best alternative to re-engage in trade and commerce. Cryptocurrencies, being highly transparent, trustless, and antifragile, will have a lot of resilience and appeal in this scenario, especially if the collapse was caused in part by the qualities of sovereign currencies (opaque, centralized, controlled) that cryptocurrencies reject.
4. The Killer App
Given time, perhaps the most dependable catalyst for global adoption of cryptocurrencies is a “killer app”: some application of cryptocurrencies or blockchain technology that allows “regular people” to do something useful, fun, or interesting that’s just not possible with conventional currency.
The applications of cryptocurrencies that people engage in today are all either difficult to use or only useful for a small fraction of the population. A killer app needs all three, together: easy to use, useful, and applicable for the layperson.
The Internet needed the same thing to take off—for a significant period of time, the Internet had begun to do some truly interesting or useful things, but dial-up modems were required and would tie up the household phone line. Even with this hurdle (which seems incredibly awkward by today’s standards) people were motivated to get online. But only because the Internet offered something that was valuable immediately, which was easy to use and applicable to the layman.
For examples to do with cryptocurrency, someone might develop an app that lets you put a couple dollars on it in the morning, and will then micro-loan it out throughout the day to make a few cents’ profit, using a system of smart contracts. Or maybe someone makes a router that charges a few cents of bitcoin for a few minutes of high-speed Internet access, to be set up in public outdoor spaces and used at any time, day or night, without needing to be housed in a coffeeshop.
But these specific examples are probably way off, and that’s the rub: as much as the community longs for a killer app, no one knows for sure what it will look like. Predicting what the killer app(s) will be would be like predicting things like Ebay and reddit in the early 90s, when email was still an exciting new technology.
Still, those inside the industry typically regard it as just a matter of time until the first killer apps start appearing. When they do, people will be individually motivated to overcome the various hurdles involved. As more people get on-board, the network effect will start to work for cryptocurrencies rather than against them.
For more great analysis of Bitcoin, check out The Layman’s Guide to Bitcoin by Logan Brutsche.