Bitcoin adoption is a widely discussed topic which has many people looking at metrics like the number of Bitcoin transactions that the network has processed. However, the truth is that the majority of these transactions are just people using Bitcoin to buy and sell altcoins. In fact, being a gateway to altcoins is arguably one of Bitcoin’s main functions right now. However, we must remember the goals of Bitcoin creator, Satoshi Nakamoto, and his vision for the cryptocurrency. In a nutshell, Bitcoin was always intended to be used as peer to peer cash that didn’t go through a traditional financial institution.
In reality, the majority of Bitcoin transactions are simply people using centralized exchanges to buy other cryptocurrencies. This was not Bitcoin’s intended purpose. Yes, it can be argued that this is adoption, but is it the sort of adoption that will lead to Bitcoin becoming a true peer to peer cash? We think not.
Instead, true adoption happens in the real world with people actually using Bitcoin as a medium of exchange and a store of value. Right now in the West, the majority of Bitcoin owners are either idealists who share the vision, Satoshi himself or speculators looking for Bitcoin to rise in value. There is nothing wrong with speculating on Bitcoin, however, this is not true adoption and these people are simply using Bitcoin as a vehicle for short term profit.
What Will Make Countries Adopt Bitcoin?
In developed countries, there is little incentive to adopt Bitcoin as a peer to peer cash. Of course, there are people who wish to adopt because of the tech and the ideology. However, there is no real pressing need. This is because fiat currencies in these countries are still relatively stable and function adequately.
However, there are countries in the world where fiat currencies are in crisis. Argentina is in financial turmoil, Syria is on the cusp of hyperinflation and Venezuela is experiencing some of the worst hyperinflation ever seen. These fiat currency crises provide an opportunity for Bitcoin to step in and offer whole nations the choice of an alternative currency system.
Countries experiencing financial crisis all have one thing in common: They are typically developing countries. They also generally have very low GDP per capita scores with most people having little in terms of savings and a high proportion of the population being unbanked.
To put it in perspective, the majority of people in Venezuela are living off a dollar per day or less. The reason is that the government and the Venezuelan banks imposed ATM withdrawal limits of just $1 per day. Now consider the position of the unbanked population holding fiat currency in an economy expected to reach one million percent inflation in 2018.
Bitcoin actually allows people to become their own bank and take custody of their own funds. This means there is no centralized organization there to say they can only access $1 a day. They instead have the freedom to access any amount of funds whenever they wish. Even though Bitcoin is volatile, it’s nowhere near as volatile as the Venezuelan Bolívar. This means that people’s purchasing power is protected better than holding local currency. These are the conditions in which Bitcoin should theoretically be adopted at scale.
The Problems Surrounding Adoption
The key characteristic of developing countries is that the local infrastructure is usually quite poor. People simply don’t have the money to be able to own laptops and desktops. However, almost everyone has a mobile phone. This means that if mobile data is within reach of the masses, then so is the ability to own and use Bitcoin.
The other side of the coin is that actually buying Bitcoin usually requires a bank account to make that Bitcoin purchase. As the majority of people in developing countries do not have one, this acts as a roadblock to adoption. That’s when peer to peer exchange of local currencies to Bitcoin comes in and LocalBitcoins is one such service. Adoption is of course bottlenecked by the availability of Bitcoins on the ground. However, this should improve over time. Quite simply if there is massive demand for an asset in a specific country, humans usually find a way to satisfy that demand.
What Do The Trading Volume Numbers Tell Us?
The difficulty is finding data sets that are broken down by country and for platforms that allow a peer to peer exchange of digital currencies on the ground, without the use of a bank account. Localbitcoins trading data gives us exactly that. It should be noted that Bitcoin purchases will be happening through other means. However, when it comes to true adoption we are mainly concerned with the overall trend.
Caption: Click here to view raw data.
Incredibly, Venezuela has the fourth highest trading volume of any country in the dataset. You must appreciate that the total value of the local currency in the country is significantly lower than countries like the UK. This means that there are higher adoption rates in the country. Even when it comes to metrics like GDP or GDP per capita, Venezuela scores exceptionally low compared to the other countries with high Bitcoin trading volumes in the data.
There is little doubt that Bitcoin adoption is growing in countries like Venezuela. This seems to support the idea that the countries most likely to truly adopt Bitcoin as peer to peer cash, are those experiencing a financial crisis.
The underlying problems that caused the 2008 financial crisis have not been solved and Venezuela will not be the last country to experience an economic crisis. Whilst more economically developed countries are better equipped to weather the storm, they are not immune to pressure on their own fiat currencies. As this pressure grows, so does the incentive for cryptocurrency adoption.