As a researcher with a background in blockchain technology and digital currencies, I have closely followed the development of Bitcoin and its use cases over the years. The recent observations made by industry experts Ki Young Ju, Nick Tomaino, and Zach Rynes regarding Bitcoin’s transaction velocity and suitability as a payment method are particularly intriguing to me.
Although the interest and acceptance for Bitcoin exchange-traded funds (ETFs) trading at spot markets have surged significantly, the Bitcoin network’s transaction rate resembles its early days. According to CryptoQuant CEO Ki Young Ju, the velocity of Bitcoin has nearly come to a standstill, mirroring levels last seen 13 years ago.
On social media platform X, Ju posited that the function of Bitcoin has transitioned from being a currency for routine transactions towards serving as a digital equivalent to gold. This transformation is noteworthy since it demonstrates that although Bitcoin has gained widespread acceptance, its usage as a daily transaction currency has fallen short of earlier optimistic forecasts.
Based on the perspective of a CryptoQuant executive, there’s a growing trend among institutions and individual investors regarding Bitcoin. Instead of regularly spending it, they prefer to keep it as a valuable asset, or in simpler terms, they are hoarding it for its store of value properties.
“Although Satoshi Nakamoto intended for Bitcoin to function as ‘Peer-to-Peer Electronic Cash,’ it is more commonly perceived and utilized as a form of ‘Digital Bullion’ by institutions, who tend to hoard it rather than engage in regular transactions,” Ju explained.
The Bitcoin velocity indicates how frequently Bitcoins are involved in transactions and provides insights into their movement between wallets over a given timeframe. An analysis of transaction data reveals that the usage pattern of Bitcoin today resembles that of 2011. Although there have been several peaks in transaction activity since then, the current levels suggest a potential downward trend. It is evident that Bitcoin does not function effectively as a daily spending currency due to its limited practical use in this regard.
Bitcoin Is Not Suitable for Payments
Nick Tomaino, a former employee of Coinbase, expressed his viewpoint contrary to Bitcoin’s suitability for transactions through a post on X. In the past, Tomaino had predicted that Bitcoin would significantly transform the payment sector during Coinbase’s formative years.
“We brought aboard major retailers such as Overstock to process Bitcoin transactions, enhancing our reputation. However, it didn’t take long to realize that there wasn’t a sustainable business model for Bitcoin payments in the long run.”
Zach Rynes, representing the Chainlink community, brought up the technical challenges preventing Bitcoin from functioning effectively as a payment method. Specifically, he pointed out that Bitcoin falls short in terms of programmability when compared to platforms such as Ethereum.
As a analyst, I’ve observed that Bitcoin’s foundational infrastructure, or baselayer, currently lacks the technical capabilities to handle the speed and complexity required for everyday transactions, according to Rynes. The Lightning Network offers a potential solution with faster transaction times but presents its own set of difficulties, specifically in terms of liquidity and scalability. These complications make the use of Bitcoin more challenging for routine transactions.
Rynes’ examination emphasizes the intricacies associated with employing Bitcoin as a means of transaction. Simultaneously, it underscores the significance of devising pragmatic approaches to cater to merchants’ needs while preserving the essence of decentralization.
From my perspective as a crypto investor, proponents of Bitcoin argued against the notion that its lack of popularity as a payment method is solely due to the IRS treating every transaction as taxable event. In fact, my analysis focused on why Bitcoin may not be an ideal choice for transactions rather than addressing the broader issue of cryptocurrencies’ role as popular payment gateways.
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2024-06-11 16:00