In 2013, one bitcoin cost $20. In 2017, it costs $20 to send one bitcoin. With record highs, thriving adoption, and media attention, this should be a celebratory time for bitcoin believers. And yet it’s hard to shake the feeling that something isn’t quite right. How did we reach a point where the world’s bank killer and Western Union crippler has become incapable of taking on the institutions it once sneered at? Bitcoin is hot as hell right now. But it’s also a mess.
Bitcoin Fees Have Become Infeasible
By any reckoning, 2017 has been a phenomenal year for bitcoin. Even the currency’s most ardent supporters would have struggled, 12 months ago, to predict the current state of affairs. But neither could they have envisaged, in their worst nightmares, it costing upwards of $20 to transfer a fraction of a coin. To chalk this year up as an unfettered success story calls for moving the goalposts and performing mental gymnastics. Bitcoin has made great leaps alright. It’s just unfortunate that not all of them have been forwards.
It can be debated whether Satoshi’s white paper envisioned bitcoin as a P2P settlement for micro-transactions. What can’t be debated is that bitcoin is effectively now unsendable and undependable for anything under a couple of hundred dollars. From the clearnet to the darknet, the conversation is the same: fees have become untenable. Despite this, bitcoin’s most ardent defenders remain in denial.
On some corners of the internet, questioning the gospel of Satoshi and the infallibility of bitcoin is heresy. “I can’t send a friend five dollars without a $15 transaction fee and this is the currency of the future?” raged one Redditor, to which the first three responses on r/bitcoin ran:
- Change the settings on your wallet?
- I upvoted you but often the inputs of a transaction increase the cost due to size significantly.
- There are projects being worked on to lower the transaction fees such as SegWit, Lightening Network, etc. So it will be cheaper, just give it time.
There’s a modicum of truth to these rejoinders, but in the here and now, “muh segwit” or “just wait for LN” isn’t much help.
Everyone has their price, a dollar figure at which they’d be willing to sell bitcoin, and also a figure they’re willing to pay to send it. Paying $20 to transfer $10 million of bitcoin seems reasonable. Paying the same amount to send $100 worth seems ridiculous. Bitcoin has been unsuitable for micro-transactions for some time, but it’s now reaching a stage where it’s unsuitable for mid-sized transactions.
Is bitcoin a store of wealth because that’s its best use case, or has it simply morphed into one because no one can afford to move it?
Don’t Confuse the Newbs
Many of bitcoin’s new investors are of humble means, setting aside $50 a week or whatever they can spare to put into digital currency. “Always store your coins in a wallet you hold the private key for,” they were urged. Now they’re discovering that their only option is to store their bitcoin on an exchange, at least until their holdings reach a level where it’s practical to withdraw to a hardware wallet.
If cryptocurrencies were to be likened to energy sources, bitcoin would be coal: expensive to move and impractical to transport in small quantities. It’s impossible to order a handful of coal every time you want to light a fire: it’s a sackful or nothing. Ethereum (gas) and bitcoin cash (hydro) are the opposite: cheap and on tap.
Coal does have one thing in its favor though – longevity. In cryptocurrency terms, bitcoin is a veritable fossil. It’s been there from the start and, thanks to its market dominance, brand recognition, and capital locked in, will be extremely hard to destroy. Scaling solutions will probably arrive, and transaction fees will eventually drop, though quite when is anyone’s guess. The question is if those solutions will arrive in time. Until then, bitcoin will continue to serve as coal fueling the furnace on the runaway Cryptocurrency Express: an indispensable hot mess.