Bitcoin's Daily Use Plummets as Value, Costs Rise

Ripple CTO David Schwartz recently participated in a discussion about the decline of Bitcoin's use for everyday transactions. The conversation was sparked by Bruce Fenton, CEO of Chainstone Lab, who noted that a decade ago, Bitcoin was widely accepted for regular purchases. For instance, over 130 restaurants in Portsmouth, NH, accepted Bitcoin in 2015, and more than 70% of ticket sales at the Satoshi Roundtable were paid in Bitcoin. However, these numbers have since plummeted to nearly zero.

Fenton views this shift as a failure, emphasizing that money must be used for transactions rather than just held as an investment. He believes that using Bitcoin for purchases could help grow the network. Schwartz, however, offered a different perspective. He argued that Bitcoin was primarily used for payments when it was not considered real money and when early adopters acquired it at a very low cost. Once its value increased, fewer people were willing to spend it, as they did not want to regret spending a significant amount on everyday items.

Schwartz also highlighted that the supply of early miners who obtained Bitcoin almost for free has dried up, reducing the incentive to pay with Bitcoin. Jack Mehof, an early Bitcoin supporter, echoed this view, noting that while he once used Bitcoin for small purchases like beer and coffee, the rising costs and slow transaction speeds eventually made it impractical. Schwartz further pointed out that other cryptocurrencies with lower transaction costs and faster speeds have not seen significant retail payment use either, suggesting that the issue goes beyond technical limitations.

Experts also attribute Bitcoin's decline as a payment method to regulatory and banking challenges. Wayne Vaughan argued that tax laws and banking restrictions have made Bitcoin payments difficult. The tax treatment of Bitcoin imposes significant accounting burdens on companies accepting it, and banks have been hostile towards Bitcoin transactions. Dave Weisberger added that capital gains taxes make spending Bitcoin too expensive, effectively increasing the cost of every purchase by 24%. Sam Jones proposed a tax exemption for small Bitcoin transactions, similar to foreign currency rules, as a potential solution to encourage more spending.

Some critics blame the Lightning Network for failing to deliver on its promise of cheap and fast transactions. Others argue that Bitcoin's primary role has shifted to being a store of value, similar to gold. Despite potential regulatory fixes, there are doubts about whether Bitcoin payments can ever compete with traditional methods. Financial advisor Anders believes that people will not use Bitcoin if it creates a worse payment experience, suggesting that fiat remains the more convenient option.