Why Bitcoin can't ever replace dollar? (Or any other physical currency)
Bitcoin and other currencies alike have been making a lot of buzzes lately. So, if you haven’t been living under a rock or are entirely broke you probably would have invested something in a cryptocurrency.
Having said that, Bitcoin is flawed. It can never replace any major physical payment option like the dollar. To understand why let's first look into why does the Bitcoin price actually keeps soaring up.
Why the Rise in Bitcoin?
The actual reason why Bitcoin keeps rising up is pretty complicated. The basic thing one needs to know is that the more people join the bitcoin network the more its value rises. Simple, eh?
Now to the main point.
Let’s assume that in near future the US government decides to replace Dollars with bitcoins. According to Monetary Base the total cash hold is about $3.9 trillion and if we include all checkable deposits the total will be somewhere around $14 trillion.
Now, if bitcoin is to replace dollar it would need to rise to $14 trillion from a market cap of about $3.2 billion. Now to do that it would need to grow 4375 times that is, 437500%. That’s huge! Really.
Assuming that it soars up in the years to come, it will essentially defy the meaning of a currency.
Confused?
Take an example. If you take a car loan for about say, 1 BTC. The current value for 1 BTC is about $18,000. The prices of Bitcoin grow at an exponential pace.
Now the next year when you have to pay up for that loan the same 1 BTC is valued at $180,000. (At least) Meaning, you are unable to pay the debt. That means you cannot perform lending and borrowing. A currency with which you can’t even lend or borrow is essentially useless.
Then, why do people keep buying Bitcoin?
If you ask people the main reason why people buy Bitcoin is in the hope that they will continue to rise in value and therein drive a profit from it. People don’t buy bitcoin to use it as a currency in near future. Sure, some people pay using it, but that is never the main purpose.
Verdict
It’s evident that if Bitcoin has to keeps rising up it cannot be used as a currency and if it remains stable, it doesn’t attract more users. The former possibility is more likely that Bitcoin will continue to be used to carve more profit instead to trying to be used as a primary mode of payment.
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