I greatly appreciate Bitcoin. By enabling pseudonymous transactions it has made many forms of commerce, specifically those deemed illegal by various governments, easier. It also offers an opportunity for individuals to conceal at least some of their wealth from the State. However, Bitcoin exists in a market environment, which means a superior competing product could come along at any moment and topple it.
When Bitcoin first came on the scene its community promised low transaction fees. They often compared the transaction fees of, say, Western Union to the miner fees of Bitcoin for sending money across the globe. At the time sending money via Bitcoin was significantly cheaper.
Fast forward to today. The price of sending Bitcoin has skyrocketed. If you want a Bitcoin transaction to clear in a reasonable amount of time you’re looking at a transaction fee of over $2.00 (as of this writing). Why is this? It’s because the Bitcoin network is running into a block size ceiling problem. This problem has created an environment where more transaction are being made then can be processed so convincing miners to process your transaction requires offering a significant reward. No problem, right? It’s just the market at work after all.
It’s true, Bitcoin’s current state is an example of supply and demand. Demand has exceeded the supply of miners so the price to get transactions cleared has increased. But markets are finicky things. If enough people decide that they’re unwilling to spend $2.00 on a transaction fee for a $5.00 coffee they’re going to look for a better solution. Bitcoin isn’t the only cryptocurrency in town so failing to address the block size ceiling problem will likely encourage consumers to find an alternate cryptocurrency.
Considering this you would think that the Bitcoin community is working diligently to solve the problem, right? As it turns out, not so much. Now a lot of the Bitcoin community is changing its tune. Instead of addressing the issue they are denying the fact that low transaction fees were a selling feature of Bitcoin not too long ago. In addition to denying the past they’re trying to explain how high transaction fess are acceptable. I highly doubt most consumers see the “wisdom” in paying a $2.00 transaction fee to buy a $5.00 espresso at Starbucks. And that’s the thing, for a cryptocurrency to succeed it needs to be useful.
I can hear some Bitcoin advocate saying, “But, Chris, Bitcoin will simply become the new gold while another cryptocurrency will become its silver!” Gold and silver run into a divisibility problem. You can only divide gold so far until it becomes difficult to use. Nobody is going to pay for a coffee using gold dust because it’s a pain in the ass. Instead they use a less valuable metal, silver, for smaller payments. Cryptocurrencies don’t have this problem. You can divide a cryptocurrency down to as many decimal places as you want and it’ll be equally easy to use. Whether a cup of coffee costs me 1 Bitcoin or 0.000001 Bitcoin doesn’t make a usability difference to me. This means that any cryptocurrency that takes over Bitcoin’s current task of handling small transactions will likely rise to dominance overall.
Governments have been unable to destroy Bitcoin but the unwillingness of its community to address technical problems very well could lead to its destruction.