Bitcoin and other cryptocurrencies have excited the investing world since their advent for many reasons. They promised a sleek new way for those who needed to send funds around the globe without onerous bank charges. They also seemed to iron out issues around fiat currencies and currency exchange transactions, not to mention the appeal of currency, by the people, and for the people.
Market Sentiments Versus Utility
Bitcoin, however, is an example of a cryptocurrency is often defeated by its critics for its lack of fungibility. But, at its heart, it is attempting to fulfill the role of a currency, designed to enable trade, with an almost artisanal twang to it when it first appeared.
The secondary market’s hysteria over the meteoric rise of the cryptocurrency’s value has muddied these waters. In a nutshell, fungibility is almost akin to liquidity, and here liquidity can be defined as the ease and frequency of trade of similar assets, goods or coins.
Fungibility refers to the asset’s character, not to market dynamics. As a known entity, trillions of dollars exchange hands daily, as a dollar is a well-known, tradable asset. Bitcoin, meanwhile, while still impressing on many fronts, no longer has a chance of being that famous, having lost the fungibility essential to any currency.
Prized in the current maelstrom as a buy-and-hold asset, Bitcoin has lost its way through a fundamental miscalculation. Cryptocurrencies of Bitcoin’s type have failed to incentivize trading with the unit and instead have been overcome by the desire to simply own the asset while the price soars.
So what, some ask? In a real sense, Bitcoin is now barely useful, at least in comparison to existing benchmarks of trade. Visa, for example, is allegedly able to process more than 50 000 transactions a second.
This kind of transactional capacity is something of a beacon for the world’s currency demands and can be safely gauged, something now sorely impossible for Bitcoin to imagine.
Although the heady appreciation and still-volatile leaps and bounds of cryptocurrencies scream value making it hard to talk about these faults, Bitcoin has now become a hotbed of wheeling and dealing amid tales of the real American Dream coming true for many.
While a flurry of deviance at current may not appear to be such a big deal, any hiatus that demonstrates a lack of fungibility is bad news.
It may seem unfair to point so quickly to these things now when all ends could never have been imagined when Satoshi Nakamoto kicked off Bitcoin in 2009. But for crypto to become even a serious player in the global currency exchange, and so much more to dominate it, it will need to incentivize fungibility in a bid to ensure its long-term importance and ultimate survival.
Blockchain or Blocked Chain
Although currently bedeviled with the hyped frenzy of the buy-and-hold market hysteria, rumblings from persistent miners of the blockchain value as well as the cryptocurrency companies themselves suggest that they’re aware of the problem.
While brilliant from a marketing angle, the gambler’s hype needs to be succeeded by people using Bitcoin and other cryptocurrencies. Without genuine users of the system, it’s destined for obscurity.
The crypto-assets that make headway across the financial market shortly will be those that have real application between vendors based on the service they represent and their safe, known and thus fungible nature.
The volume and speed of transactions do determine the value of the currency to some extent. Thus, bitcoin will need to up its game on this front through incentivizing vendor trading if it hopes to be applicable, usable and even simply around over the long term.