Bitcoin has existed for almost a decade, but legally it often sits in a murky gray area. Some governments welcome it, others impose heavy controls on it and still some ban it outright. Furthermore, though the cryptocurrency may be a game-changing innovation, it has built-in disadvantages that slow its widespread adoption. To be sure, Bitcoin has faced many challenges since its inception — and it will need to overcome all of them before it can become a universal currency.
Compared to fiat currency, cryptocurrency is still relatively new. Understandably, many governments aren’t sure what to make of it, and there are many reasons why they’re wary.
Here are a few:
They’re not sure how to regulate it
Bitcoin is a decentralized currency, meaning its existence isn’t tied to any one institution. A government can regulate an exchange (like Coinbase, for example), but it ultimately can’t stop you from buying and selling the cryptocurrency. That’s because Bitcoin is exchanged peer-to-peer. For this reason, it’s difficult for governments to pinpoint exactly who and what to regulate. Regulation challenges include consumer protection, taxation and enforcing the use of Bitcoin for lawful purposes.
They want to control capital outflows
Governments put rules in place to guard against the exodus of money from their borders; however, Bitcoin can be used to circumvent capital controls. For example, you could buy Bitcoin with Chinese yuan on a local exchange, then sell the coins offshore for euros. Governments have often been slow to enact cryptocurrency regulations, which many individuals have taken advantage of to move money around the world.
They’re worried about Bitcoin being used to fund criminal activities
Bitcoin isn’t totally anonymous, but it can still be extremely difficult for law enforcement to track. That’s why governments are worried the currency can be used by criminals for illicit activities like trafficking drugs and funding terrorism.
Though governments can restrict the use of bitcoins, they’re not the only barriers to the cryptocurrency’s adoption. It simply has a few built-in disadvantages.
There’s a learning curve
It’s not difficult to understand how fiat currency works — if you want to buy a sandwich, you exchange a few dollars and you get it. But Bitcoin isn’t as simple. If you want to get started with the cryptocurrency, you should probably first learn how digital currency works, what a Bitcoin wallet is, what a blockchain is and how to transfer coins. This learning curve makes Bitcoin much less accessible than fiat currency.
According to the CoinDesk price index, the price of Bitcoin shot to a sky-high $1,129 on January 4, 2017. A week later, it had plummeted to $775. Bitcoin is far from a stable currency, and it’s difficult to know what it’ll be worth even within a few days. For many people, this makes it less attractive for use as an everyday currency.
It carries a stigma
Though many Bitcoin proponents would argue that the negative reports are overhyped, some people see Bitcoin as a risky, crime-facilitating currency. They may have read about Mt. Gox losing $600 million in Bitcoins. They may also have heard about Silk Road, a Bitcoin-based online drug marketplace, and learned that its founder was sentenced to life in prison. When the media breaks bad news about Bitcoin, it tends to slow its growth.
What needs to happen before Bitcoin is widely adopted?
Bitcoin has numerous challenges to overcome before it can win mainstream adoption. Some of these problems will need to be resolved by governments, and others can be tackled through private enterprise.
Many people simply don’t think Bitcoin is better than the fiat currency they have now, and they see no reason to switch. Bitcoin isn’t often easier to use and in some areas where you’d think Bitcoin would be superior, like international money transfers, it actually turns out to be more expensive. Mainstream consumers don’t find many strong reasons to use bitcoins; however, cryptocurrency businesses can innovate to fill that void.
Governments are still wrestling with Bitcoin’s complexity. But if they’re willing to tackle the complex regulatory issues that come with the cryptocurrency, they may be able to create stable policies that their citizens can take to the bank.
You can’t make someone a Bitcoin evangelist if they never pick up the cryptocurrency in the first place. Before Bitcoin can take over the world, its proponents need to bring about two key changes: educating a wider population about the cryptocurrency, and making it easier to adopt. If they can succeed, they may finally position Bitcoin as a viable alternative to fiat currency.