Bitcoin Might Not Be the Future of Cryptocurrency, but What Is?

If you’re an idealist like me, you believe the future of cryptocurrency will be about empowering people who have suffered under the rule of large banks and oppressive regulations. This technology will give everyday people the chance to control their money like never before, without relying on middlemen or centralized systems.

Since bitcoin arrived on the scene a decade ago, we’ve seen a glimpse of what this utopia might look like. In its early days, BTC allowed users to make fast, secure transactions across national borders with minimal fees. However, as the original cryptocurrency has boomed in popularity, its weaknesses have become clearer.

Here’s why I think bitcoin won’t deliver the cryptocurrency future we want.

When was the last time you paid with gold?

Bitcoin is a digital gold. There’s really no better way to describe the original cryptocurrency. The most obvious comparison between the two is their high value. Both bitcoin and gold are worth a lot of money because of their scarcity.

At the time of publication:

Gold is worth US $1,289.50 per ounce

Bitcoin’s current price is US $3,781.40

According to the World Gold Council, roughly 190,040 tonnes of gold has been mined throughout history. At the time of writing, there are 17,572,025 BTC in circulation.

Of course, bitcoin’s max supply is 21,000,000. That means we’ve already mined roughly 84% of the BTC that will ever exist. If you’re imagining a cryptocurrency future where we strive to reach mass adoption, those who haven’t yet invested in bitcoin are way behind.

Gold faces a similar problem in that a few entities own a lot of it, and its supply is limited. According to U.S. Global Investors, the U.S. government has nearly as much gold in reserve as the next three countries combined. Those private citizens who do own gold usually only have a tiny amount, likely in the form of jewelry.

The US Treasury currently owns 8,134 tonnes of gold of which 7,716 tonnes is stored by the US Mint (4,583 tonnes at Fort Knox, 1,364 tonnes in Denver, 1,682 at West Point) and 418 tonnes at the Federal Reserve Bank Of New York.

Because of its scarcity and high price, gold isn’t practical for making everyday transactions. Even if you were lucky enough to own a decent amount of gold, you wouldn’t break off a tiny fleck to pay for your morning coffee.

You could argue that bitcoin has reached a similar stage. Unless you use the Lightning Network, which is still under development, making everyday purchases with BTC is impractical.

At the time of publication, according to bitcoinfees.info, the average BTC transaction confirmed within 10 minutes costs $0.19, while a transaction confirmed within an hour costs $0.13. That sounds fine for larger transactions, but would you pay an extra $0.19 to buy your $3 cup of coffee? I know I wouldn’t.

The Bitcoin wealth gap

Bitcoin, like gold, has been hoarded.

Those who got in early on the bitcoin mining craze earned massive block rewards with relative ease. If they were patient enough to hodl, those miners saw their bitcoins grow in value from a few cents to thousands of dollars. With a relatively small investment of time and money, many of those people have now become millionaires.

If we look at the distribution of BTC wealth, we can see evidence of this:

Bitcoin distribution. Source: bitinfocharts.com

According to this chart, nearly 97% of bitcoin addresses hold less than 1 BTC. That 97% consists of 22,517,371 addresses, but together those addresses hold less than 5% of the world’s total BTC. That’s a stat that would make even the most ardent trickle-down economist blush.

Conversely, those at the top end have wallets worth hundreds of millions of dollars each. Given that there are fewer than four million bitcoins still to be mined, its hard to imagine this distribution changing much.