As Bitcoin’s price plummeted this week, the discussion continued to center around one question: “Will Bitcoin replace the money we use today?” Debates about the capacity of Bitcoin’s blockchain-based network or its 21 million coin limit are implicitly asking about its fitness to be a widely used currency. Advocates point to plausible ways the transition could happen. Even Bitcoin’s naysayers have this question in mind: J.P. Morgan CEO Jamie Dimon, former Fed chair Alan Greenspan, and Nobel laureate Joseph Stiglitz have all predicted Bitcoin will eventually be worthless. So is Bitcoin an all-or-nothing proposition?
In fact, there are many possible intermediate cases, where Bitcoin has value for specific applications, without replacing the dollar, gold, or any other major underpinning of the global financial system. Let’s look at just a few examples.
Cross-border payments today are notorious for high fees and red tape. Wire transfers take an average of three days to clear, and fees are between 1 and 4 percent. Cross-border payments using Bitcoin can and already have reduced this waiting time and cost. This is not just a tool for large banks and corporations. Immigrants often currently pay high fees for remittances of money back home. Using Bitcoin to move funds all over the world without red tape does not require its use as an everyday currency. Funds in one nation’s currency can be exchanged for Bitcoin, transferred, and then exchanged for currency in the recipient’s country.
Bitcoin has frequently been discussed as a tool to bring people, particularly in the developing world, into the financial system. The “unbanked” remain that way because it isn’t worth the fixed costs to financial intermediaries of setting up shop in the world’s more remote locations. But these fixed costs are unnecessary with Bitcoin, which can allow billions of people to newly transact in the global economy.
While not fully anonymous, Bitcoin transactions are hard to trace. Yes, this includes the black market, which is part of what could give Bitcoin lasting value in a world without mass adoption. But it has legitimate uses too, and might be particularly important for people living under particularly oppressive governments — and give some peace of mind to those worried about increasing government surveillance.
Ethereum is generally regarded as being more flexible for the programming of smart contracts, but they are possible using Bitcoin as well. To have teeth, smart contracts require the irreversibility of transactions characteristic of blockchain-based cryptocurrencies such as Bitcoin and Ethereum. If the transactions weren’t irreversible, there would always be the possibility of one party taking the matter to a government’s legal system, which is exactly what smart contracts seek to avoid. Again, this feature may be particularly desirable in countries whose governments are least trusted to enforce contracts and property rights.
All of these use cases require not just blockchain technology but an open, publicly accessible cryptocurrency, of which Bitcoin is currently the most widely used. The only way Bitcoin will ever become truly worthless is if other cryptocurrencies or technology not yet foreseen comes along and does all of these things better. The ceiling for Bitcoin may be sky-high, my guess is the floor is significantly above zero.