From 2013 to 2015 we saw a significant rise in merchant adoption of Bitcoin. In this short time period, Bitcoin moved from being a purely speculative instrument to having actual commercial use, whether it’s flying with Expedia or Cheapair, buying domain names with Namecheap, getting goods delivered to your house through Overstock, or grabbing a coffee at a local cafe.

These changes drive us to ask: with a lack of consumer adoption, what was the driving force that brought about this sort of merchant adoption?

Before we answer this question, let’s first recall the three most distinguishable parts of Bitcoin: a transaction network, a programmable currency token, and a new store of value.

At its origins in 2009, someone wishing to use this technology had no option other than to use all three segments. If you wanted to use the transaction network of Bitcoin, you also had to handle the token with special programs, and take on the volatility risk that comes with a newly developed store of value. While this isn’t a problem for a small niche of enthusiasts, it doesn’t allow much to be done with this technology on a larger scale or solve entrenched problems that come with traditional finance.

Companies like Bitpay and Coinbase were some of the first to tackle this inflexibility. With these services, a merchant could now choose to use Bitcoin as a transaction network without having to handle the currency token, or take on volatility risk. For a merchant, Bitcoin now has the flexibility for a vendor to pick and choose the segments it wants to use, and ignore the others it doesn’t.

Now it’s 2015, and the strength of Bitcoin the transaction network is well proven among vendors. Yet for consumers, the ecosystem is not as flexible when compared to merchant services, and users are forced to use every aspect of Bitcoin when starting off, or none of them. This wouldn’t be a problem if the whole world used and operated on cryptocurrency, yet without this switch, using Bitcoin remains a niche. For people in developing countries, individuals without bank accounts, or those using it for remittances, Bitcoin still isn’t useful for solving the problems they are facing, and thus there is little incentive to use it.

Merchant adoption helped make Bitcoin more useful in the real world, but how can we learn from its success story to make Bitcoin more useful to consumers?

Lessons from Merchant Adoption

One major step towards consumer adoption could be spurred by allowing consumers to use the Bitcoin transaction network without needing to handle the currency token or worry about its volatility.

A popular initial critique of this view is, “but that’s not true, consumers don’t want an irreversible payment network because then they lack the ability to initiate chargebacks in case of fraud.” However, this isn’t quite accurate. In 2005, the Dutch organization Currence created a low­cost and risk­free irreversible payment network within the Netherlands called iDeal. The service has become incredibly popular for user­to­user and online payments, processing over 140 million transactions in 2013 ​(growing steadily in volume from every year prior). ​In Russia, the QIWI transaction network offers a similar platform for non­reversible payments within the country.

These types of irreversible transaction networks decrease transaction costs as a whole. By removing chargebacks and consumer fraud, less overhead is needed to handle claims and the savings are passed down as lower fees. In addition, funds are cleared between accounts much sooner without the possibility of chargebacks occurring two months later. Having the option between irreversible and reversible transaction networks allows for everyone to choose what works best for each situation.

Yet there exists a common problem with these national transaction networks: each user is required to own a bank account, and the networks still only allow for inter­country transactions.

Separating Bitcoin, the transaction network and Bitcoin, the currency token

Hedging (or locking)​ ​Bitcoin to other currencies and precious metals makes the entire Bitcoin network more useful. With services like Bitreserve, Coinapult, Circle and Tether (and many more to come), a consumer can use Bitcoin (the transaction network) without managing the currency token, and can fix price stability through a preference of government currencies and precious metals. In addition to removing oneself from Bitcoin volatility, these tools can also be used to quickly swap between stores of value in times of instability for particular currencies.

For those who are comfortable handling cryptocurrencies themselves, they can choose to use Bitcoin as a transaction network and as a token, without the volatility. New cryptocurrencies such as Nubits, bitUSD, and Ethereum USD are working on decentralized locking methods to peg stability to previously defined stores of value. It should be noted that these developments are extremely experimental in nature, and still require development and testing to have the same level of stability currently seen in centralized reserves.

How to use locks in the Real World

So now an individual can use Bitcoin with price stability, but how can one actually use this USD value in the real world?

One option is to use the plethora of Bitcoin services to purchase everyday goods. As mentioned before, merchant adoption has greatly benefited the use case of Bitcoin, allowing for individuals to actually use it for purchases.

For purchases that don’t natively accept Bitcoin, startups and services like OneBit, Xapo and ANX​ allow users to use MasterCard NFC or debit cards at the point of sale.

For merchants that don’t accept cards, the growing Bitcoin ATM network allows for individuals to cash out Bitcoin for paper money.

Bringing Bucks to the Unbanked

A savvy individual without a bank account can now use Bitcoin to overcome traditional banking problems by using a combination of services. With just an email address, most of these services are available globally with low to no fees. By lowering the risk for new users and introducing new flexibility of how one chooses to use parts of Bitcoin, the entire ecosystem can be leveraged in more use cases.

This new flexibility also allows developers to focus on their creations with less capital, fewer banking relationships and less manpower to solve problems found in traditional finance. This means a lower hurdle for competition and thus more participants in building the infrastructure of this new modular financial network.

Locking services provide the flexibility needed to bring Bitcoin out of the niche.

By Dean Masley