Photo by Mike Kelley

Although the Bitcoin concept is unique in a technical sense, its adoption seems to follow a familiar path, namely that of an

Unsponsored technical standard within a two-sided market suffering from strong network externalities.

Two-sided markets are well-studied. Thus, we can inform our expectations by the wide inventory of similar phenomena. What follows is a forecast concerning the bitcoin adoption process as well as seven suggestions for how to hasten the process or at least to make it more pleasant and fruitful for businesses and consumers.

Problems of the Current Stage

Bitcoin is often referred to as either a currency, payment system, distributed communication network, and/or monetary concept. Technically and potentially it is all of these. However, at the current stage of adoption it is only just entering the realm of what could be considered a “payment system” and has a ways to go before it is considered “money” in any strict sense. Bitcoin in its present stage is a speculative asset the value of which depends on free market factors — e.g. supply/demand, anticipation of the technology’s success — but also on several factors related to the consolidation of Bitcoin’s executive power in Greater China.

Adoption is still the most pressing issue

By overrating the stage of Bitcoin, community members continuously overlook actual problems and ignore the fact that bitcoin is still misunderstood by 99% of the world. Bitcoin might still become what many bitcoiners dream of — a libertarian economic base — but at the moment it is not much more than an new-age casino with a novel chip system and terrible user experience.

Bitcoin: The Next Betamax?

With its ongoing — and intensifying — scaling debate, Bitcoin has fallen into the common “standards trap” that plagues unsponsored technologies. This results from lack of coordination and misaligned interests. To be fair, Bitcoin is “decentralized” by default and so these issues, while troubling, are natural and to be expected.

The Importance of Initial Adopters

Despite the increasing global connectedness of things, there are still certain interactions that benefit from being “local” — for instance, payments. As cool as it is to send magical internet money through the air, the experience of receiving cash-in-hand is still difficult to improve for everyday transactions — especially, for the average non-technical person. So the question of how merchant-level adoption for bitcoin will occur is important for many reasons.

Let us recall that no payment system has ever emerged without direct interest and support from retail businesses — specifically those of the brick-and-mortar variety. In order for these providers to join Bitcoin they should be incentivized to do so. But, even if the scaling discrepancy — seen by many insiders as “the most pressing issue in bitcoin” — was resolved tomorrow the result would only indirectly influence bitcoin-for-merchants adoption. Bitcoin benefits to retail businesses are manifold: from potentially ultra-low transaction costs to various tax optimization opportunities; but, regardless of how the scaling debacle shakes down there are specific tactics and development efforts required in key areas to breach the adoption-threshold.

It is hard to predict but a large number of experts suggest that poorer, developing countries are likely to spark the flames of widespread bitcoin adoption. As the argument goes, these markets lack of incumbent infrastructure including: banks, financial services, and credit cards could easily lead to the demand for bitcoin under the right circumstances. We disagree. In the 1990s, Africa and Asia didn’t have Internet either, but the resulting online revolution largely passed-over these developing nations. Bitcoin payments, like the internet at large, is relatively high on Maslow’s Pyramid of Needs it turns out.

Continue to Part II