Crypto adoption: Are we looking at it from the wrong angle?

There are posts all over the internet exploring the reasons behind the nearly nonexistent adoption of cryptocurrencies as day-to-day payment systems.

Some of those articles have even appeared on this site. Writers typically talk about things like scalability, volatility, speed, and expense. But are we looking at crypto adoption from the wrong angle?

Coindesk contributor and Open Money Initiative cofounder Jill Carlson seems to think so. It is her contention that the original purpose behind the cryptocurrency concept had nothing to do with developing an alternative monetary system that would replace fiat for the majority of global consumers. She contends that its original purpose was to provide an alternative system for small groups of people who rely on censorship-free transactions.

Carlson asserts that cryptocurrencies were never intended to go mainstream. That is not to say they do not have value as mainstream monetary systems. They do. In fact, there are some places around the world where you can buy with Bitcoin as easily as fiat. Yet those places are few and far between. By and large, worldwide adoption has not been realized.

Is that by design? Let us explore Carlson's assertion in a bit more detail.

Circumventing financial censorship

The crux of Carlson's Coindesk piece is the idea of financial censorship. Imagine you are the owner of a cannabis dispensary in California. Because marijuana is still considered a controlled substance under U.S. federal law, there are almost no commercial banks willing to do business with you. That means all of your transactions have to be in cash.

It might not seem to be a problem until you realize that you are taking in thousands of dollars each day. You cannot just run down to your bank and deposit that much money at the end of the day because it would raise suspicion. It would not be long before federal regulators began looking into your business activities. So what do you do?

A lot of cannabis-based business owners in the U.S. resort to hording cash in the short term, then finding ways to launder it in the long term. What they are doing is completely legal under California law. Yet they are being financially censored by federal law.

There are all sorts of legal and illegal activities that face financial censorship. Most of the activities in question are not subdued by censorship, yet those who engage in said activities have to jump through hoops just to manage their finances. Cryptocurrency is the perfect solution for some of them.

A tool of freedom

Carlson says that Satoshi Nakamoto, the founder and creator Bitcoin, described his creation as "a tool of freedom." It is definitely that. Once you own some Bitcoin, you are free to do just about anything you want with it. Moreover, you are free from all the repercussions of financial censorship. To illustrate the point, let us look at another example.

Imagine an Argentine family that wants to stabilize its own finances by purchasing U.S. dollars. They cannot go down to the bank and make a purchase. Buying dollars is illegal in Argentina. Now imagine that the family has relatives living in the US. Those relatives could buy Bitcoin with their dollars, then send that BTC to the family in Argentina.

What does the family do? Turn around and convert that BTC back into U.S. dollars. They have just used BTC to get around government censorship. Bitcoin has become a tool of freedom to them in the sense that they can get their hands on U.S. dollars despite their own government not wanting them to do so.

By the way, this post makes no moral judgments one way or the other. It is up to citizens and their governments to work things out. Addressing cryptocurrency as a tool of freedom is all about laying out the facts. The simple fact of the matter is that cryptocurrencies are great tools for getting around financial censorship.

Freedom is the original intent

Continuing through Carlson's piece reveals her belief that monetary freedom was the original intent of Bitcoin. She presents anecdotal evidence to that effect. If you follow her evidence to its logical conclusion, you are forced to address the possibility that Bitcoin's original intent is still its only intent. And if that is the case, then Bitcoin becoming a day-to-day monetary system is at odds with what Satoshi Nakamoto really wanted.

You see, there are trade-offs to freedom. For example, consider the political freedoms American citizens enjoy compared to many in other parts of the world. The trade-off for those freedoms is a system that sometimes breaks down and allows those with means to take advantage of those without. Americans are intensely protective of their freedom to the extent that they are willing to live with the trade-offs.

Similarly, there are several different trade-offs for cryptocurrency freedom. One of them is speed. Because of the way blockchain is designed, Bitcoin transactions cannot be processed anywhere near as quickly as credit card transactions. What the Visa and MasterCard networks can complete in seconds takes the Bitcoin network as long as 10 minutes.

The much lower speed might be enough to keep average consumers on the outside looking in. But to someone who is trying to work around financial censorship, waiting for transactions to finalize is a small price to pay. Likewise when scalability becomes an issue.

Scalability is another trade-off. In order to make Bitcoin both decentralized and secure, certain rules had to be written into its code. Immutability is one such rule. Unfortunately, immutability prevents Bitcoin from scaling well. Every immutable transaction simply adds to the blockchain ledger ad infinitum. Every new block increases the time it takes to complete transactions as well as the work required.

Perhaps success has been achieved

What Carlson contends is admittedly a tough pill to swallow. But do not dismiss what she says on its face. Step back and think it through. Do a bit of research and look for the evidence. You might come away concluding that Bitcoin has actually achieved the success it was intended to achieve.

Again, the point of this post is not to say one way or the other. But for the sake of discussion, let's just assume Carlson is correct. Let us assume Bitcoin and its descendants have achieved their desired success. How would we know?

The previously mentioned examples of getting around financial censorship prove the freedom concept. Those two examples are by no means all we have to look at. There are many more where they came from. In Venezuela for example, people trying to ditch fiat without buying Petro are relying on their relatives to do the same thing described in relation to Argentina: family members outside the country sending them crypto.

Another way to know that Bitcoin has achieved its stated goal is to look at legal activities that are uncensored. Take online gambling, for example. Online gambling is not only legal in the UK, it is prolific. You could make the case that the UK is the online gambling capital of the world.

It turns out that UK casinos are increasingly welcoming of a small number of cryptos including Bitcoin, Bitcoin Cash, Litecoin, and Ethereum. They do not mind accepting digital currencies because it brings more players to the table. How does freedom come into play here?

Gamblers can play with cryptocurrency instead of fiat. That means they can play without revealing bank or credit card information. They can play without letting on to family members that they are gambling. The possibilities go on and on.

The rise of government interest

Perhaps the most telling sign that Bitcoin has achieved its intended purpose is the sudden rise of government interest. Up until a few years ago, governments shrugged off cryptocurrency as a passing fad that would eventually die on its own. That changed when Bitcoin nearly hit the $20,000 mark in 2017. When Facebook announced its Libra project early in 2019, any governments still on the cryptocurrency fence were suddenly made believers.

As a result, governments are working hard to come up with regulations and develop their own digital currencies. In terms of the latter, Venezuela issued its own digital currency a couple of years back. It is essentially worthless, but at least it's out there. China already launched a central bank digital currency in December 2019.

Even the Marshall Islands and the British Virgin Islands are getting on the cryptocurrency train. Leaders in the Marshall Islands eventually want a central bank digital currency that completely replaces the U.S. dollar as legal tender. In the British Virgin Islands, they want a national digital currency that works alongside the U.S. dollar.

Why would government be so hot and heavy to regulate crypto and create their own digital currencies? Because of the freedom issue. Governments do not want to lose control of economics - which is exactly what would happen if private cryptocurrencies ever became day-to-day monetary systems.

It could be that we are looking at cryptocurrency adoption from the wrong angle. If Satoshi Nakamoto's original intent was only to create a tool of financial freedom, he may have already succeeded. Maybe mainstream adoption was never the plan.