Bitcoin Is a Useless Currency, Here’s What We Should Use Instead

Why Bitcoin could be the worst global currency, the reason large corporations are investing in it, and two alternatives that could take over.

It’s hard to ignore the hype around crypto right now. Perhaps it’s due to Bitcoin’s new record highs, Elon’s tweets on Dogecoin going ‘to the moon,’ or the major companies like Tesla and Apple gearing up to invest in Bitcoin. Whatever the reason, a trend has been sparked, and now it seems everyone is talking about their favourite cryptocurrency.

I see new highs every week, and it feels like there are no wrong answers. People love crypto at the moment and they’ll buy anything without question as long as someone online is saying it will go ‘to the moon.’

This happened in late 2017 when Bitcoin shot to $20,000 and everything in the crypto space was booming… until it wasn’t. If you look at the chart for almost any crypto you’ll see a huge spike in 2017 and then a series of falls as people lost interest.

Peter Schiff and other Wall Street bankers write the whole thing off as a bubble, and they could be right. However, If you look back to the dot-com bubble in the late 90s, you’ll see that even after it burst there were still individual winners like Amazon and PayPal.

The problem is most people in the crypto space are investing based on perceived value and not utility. They’re asking questions like what price CAN this get to, instead of asking what price SHOULD this get to, and does this Altcoin have any value or utility long term.

The dot-com bubble was very similar; web-based companies received unquestioning investments purely because .com was in their name. Very few people were thinking about whether websites they invested in had any place in the future, they just wanted in on all of it.

It’s the FOMO driven investments, act now and don’t think or you’ll lose out, but I think ironically, if you stay away from hype and ignore FOMO you’ll be less likely to miss out long term.

Crypto uses

To determine which cryptos might ‘win’ and become the Amazon or PayPal of the coming crypto bubble, we need to look at how they are used, and more importantly how they help the end-user.

I think most people believe all cryptocurrencies are trying to serve one purpose but, in reality, each one brings very different ideas about the future and their role in it.

There are two ways I think crypto could be adopted.

The first way is probably the most likely and for early Bitcoin supporters quite bleak; crypto could be used only by banks as a way of moving fiat in a fast and cost-effective way.

The second is that crypto could become a global currency that replaces fiat and decentralises the entire money system, making banks as we know them today obsolete.

I think the least effective cryptocurrency for both of these potential implementations is Bitcoin.

Bitcoin as a currency

When Bitcoin first came to fruition the benefits touted by its supporters were; fast, cheap, and decentralised.

Fast:

Bitcoin transactions typically take 15 minutes to 1 hour. Just keep that in mind while you read the second half of this.

Cost:

The transaction fee for Bitcoin has been $60 in the past but right now it’s around $15. When you buy something you’ll need to pay that $15 transaction fee as well as the price of your purchase.

Transactions are processed by miners. When the network is overcrowded the miners will prioritise the transactions they pick up based on the fee attached to it, this leads to higher transaction costs as Bitcoin is more widely used.

Additionally, as the price of Bitcoin increases so do transaction fees. Miners are paid in Bitcoin, and even though the transaction costs halve every 4 years so does the Bitcoin output causing the price of mining in USD to continue to increase.

Decentralised:

Yes, it is decentralised, but given the fees and transaction times to buy coffee with Bitcoin you’ll need to rely on someone, either a bank or financial institution, to guarantee the transaction so you don’t have to wait an hour for it to process, leaving us with the same system we have now.

Using Bitcoin

If large banks used crypto to quickly and cheaply move money from one place to another they could save billions of dollars every year, and I have no doubt this will happen, however Bitcoin is far from the best option, and some cryptos like XRP could take over.

For these reasons, Bitcoin will not work as a decentralised global currency that replaces banks either. When people are given the option to pay in crypto at a shop they’ll want the cheapest fastest option, and Bitcoin just isn’t that.

Side note: Bitcoin uses more electricity annually than the whole of Argentina

Bitcoin as an investment

I am not saying Bitcoin is worthless. I’m saying that as a currency it’s probably our worst option and it looks unlikely that Bitcoin will be used as anything other than an investment or store of value, similar to the role gold currently plays.

The three reasons corporations are investing in Bitcoin

Trusted:

Bitcoin is the oldest and therefore the most trusted crypto, it has gone the longest time without being hacked, and because people look to Bitcoin as the most reputable option it’s seen as a more safe and stable investment in the crypto world.

Taxes:

Tesla’s 1.5 billion in Bitcoin is called an indefinite-lived intangible asset, this means that when the value of their Bitcoin goes down they can declare it as a loss and pay less tax. However, if the value of the Bitcoin goes up, they just have to add the increase to their asset column and they don’t declare it as income unless they sell. See source: here.

Diversification:

If you have a company holding other financial assets and you want to diversify your risk, Bitcoin is perfect for risk management and diversifying a portfolio, this is because Bitcoin’s correlation to other assets from January 2015 to September 2020 is an average of 0.11, that means there is almost no relationship between the returns of bitcoin and other assets. See source: here.

Potential winners

The two cryptocurrencies I’m talking about here are from both sides. One aims to be a token for corporations and banks to move fiat, and the other aims to replace fiat and make banks as we know them today obsolete.

XRP- aimed at improving banks

XRP is designed by bankers for bankers, it’s essentially meant to do what Bitcoin could’ve done but cheaper and faster. Ripple, the company that created XRP, aims to use it as a token to transfer fiat at very fast speeds and at almost no cost.

The CEO of Ripple said that if they succeeded with that aim, XRP would eventually need to cover “all the money” putting the market cap over a trillion dollars and the price of each coin between $10000 and $35000 but it’s unlikely this will happen anytime soon.

XRP is in no way designed to replace fiat, or be a global currency, instead, it aims to save billions in transaction costs for financial institutions- keeping the current system but making it more efficient.

Benefits:

• High potential to be accepted by banks: it’s not fighting the system it’s playing into it, and considering their history, I’m not sure I’d bet against the banks.
• Ripple (the company) is already respected: currently 38 of the largest banks worldwide use Ripple’s cross-border payment technology and it’s been adopted by more than 250 banks in over 50 countries.
• Fast: transactions take an average time of 3–5 seconds which is insane compared to Bitcoin’s 10 minutes to 1 hour transaction times.
• Low cost: transactions cost 0.00001 XRP (currently $0.0000055), and there are no miners for XRP so transaction fees are burnt, they don’t go to anyone.
• Energy-efficient: for every 1 million transactions, XRP could power 79,000 lightbulb hours. In contrast, for every 1 million transactions, Bitcoin could power 4.51 billion lightbulb hours.

Shortfalls:

• Not decentralised: more than 50% of all XRP is still owned by Ripple, and they sell a share of it every month to fund their business.
• Lawsuit: The Securities and Exchange Commission (SEC) has a lawsuit alleging Ripple violated federal securities laws by selling a digital asset without registering it as a security. This could also be good for XRP if it results in clearer regulations around the cryptocurrency and therefore higher acceptance from financial institutions.

Nano- a possible global currency:

This for me is the absolute best-case scenario. If Bitcoin can be compared to a blackberry smartphone then, Nano is the iPhone. The CEO of Nano has high ambitions, he’s trying to create a global currency, no exchange rates, fast and free transactions, and absolute decentralisation.

Benefits:

• Completely FREE to use: I mean zero transaction fees, not near to nothing, absolutely FREE.
• Very decentralised: they originally used google captchas to distribute Nano, people could complete google captchas online and receive a certain amount of Nano every hour, and now people all over the world hold it.
• Instant: Nano’s transaction time is usually less than a second because every Nano user has their own blockchain, the blockchains verify themselves against each other using the block-lattice, this is a graph that connects the blockchains when a transaction occurs.
• Energy-efficient: for each transaction Nano uses only 0.000112 kWh, this means at 7,000 transactions per second, the entire Nano network could be powered by a single wind turbine.

Shortfalls:

• Playing against the system: Nano is trying to replace the current banking system and working against fiat. I hope it succeeds, but without some institutional adoption, it’s unlikely to gain traction.
• Not yet popular: it’s not well known, but this might be good for an investor because the market cap is extremely low.

What you could do now

To recap the reason I’m writing this is because of hype. People aren’t looking at the facts, they’re investing based on what’s trending on Reddit and what Elon Musk tweets out when he’s bored. If you don’t want to miss out start thinking about 5–10 year horizons instead of what’s popular now.

If you believe that crypto will play a role in the future, consider who it will impact.

If you think it’s about the end-user, the person in Starbucks buying their coffee, then look at the factors they will consider when choosing what Altcoin they want to use. The end-user wants convenience, they don’t want to wait for payments to verify and they certainly don’t want to pay fees.

If you believe the banks will drive the crypto market consider what they will want: control, low or no fees, quick speeds, and stability.

Either way there’s potential to make real returns here and get in on the ground floor as smart investors did in the dot-com bubble. When you decide to invest stay away from hype, don’t fall in love with one Altcoin, follow the facts, watch what the corporations and financial institutions are doing and consider why they are doing it.