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TL;DR: Bitcoin adoption as a medium of exchange is slow, and the two most significant reasons why this is so are that “Not enough people own Bitcoins”, and “Merchants are afraid to accept Bitcoin due to Bitcoin's Price Volatility (a compulsory rough path to hyperbitcoinization)”.

Again, as you probably already know, for Bitcoin to fully become money, it needs to satisfy three basic roles of;

And so far, by the virtue of Bitcoin's inherent progressive scarcity, it is a deflationary asset, which means that the value of Bitcoin will, in an unrythmical manner, increase over time because of the basic principle of supply and demand, which makes it a great Medium of Storage of Value. However, jumping the line to the third role, we realize that Bitcoin would need to reach a peak global adoption where the majority of the world agrees and recognizes its value and importance, before it can be used as a unit of accounting.

Each of these monetary roles, when fulfilled, by default, should usher in the next one smoothly, but somehow it seems we are stuck on the second role, and we don't seem to be making significant progress. For Bitcoin to be regarded as a medium of exchange, a reasonable number of the global population should be willing to accept it in exchange for value, especially businesses and service providers.

A lot of people may attribute the slow adoption of Bitcoin as a Medium of Exchange solely to the issue of "uncertainty in government regulation". As much as this is an important factor, I think this is the least important factor. I assume it is the least of the impending factors because governments will eventually draft regulations as they deem fit when they realize that people are demanding Bitcoin for payments. One of the basic natures of sound money is that it embodies a free market situation where people can choose to use it or not.

Aside from in tyrannical and authoritarian regimes where Bitcoin may be outrightly banned and outlawed, Bitcoin does not necessarily need to be recognized as a legal tender before anyone can choose to accept it as a means of payment for their products and services. A typical example is in El Salvador, where the legal tender status of Bitcoin has been withdrawn, but people are still willing to accept it for payment.

So, I do think that the two main reasons for this slow and low adoption of Bitcoin as a Means of Exchange are:

This idea suggests that perhaps Bitcoin has not fully and universally satisfied its first role as a medium of storing value before it moved on to try to become a medium of exchange. Reports from several data sources, including one from Chainalysis (https://www.chainalysis.com/blog/bitcoin-addresses/), suggest that out of the 460 million Bitcoin addresses that exist, only about 172 million addresses are economically viable (hold some Bitcoins in them), with over 89% of these addresses identified to belong to different forms of Crypto services. This leaves way below 30 million Bitcoin addresses belonging to individuals. While over 70% of the world's population has access to banking services (https://www.worldbank.org/en/publication/globalfindex), only a tiny fraction of this number, compared to the number of banked humans, actually own Bitcoin, and a good percentage of these Bitcoin owners are HODLers, which are mostly early birds and High Networth Individuals, Treasury Institutions, governments, etc.

For Bitcoin to become a global means of exchange, a reasonable percentage of average individuals in society would need to own Bitcoin. Because it is from owning Bitcoin that one might begin to think about exchanging their Bitcoins for other value.

Of all the factors slowing Bitcoin down from becoming a go-to global means of exchange, "Bitcoin's volatile price action" is arguably the most crucial one. There are a lot of Bitcoin owners who might be willing to spend their Bitcoins for other values, but the uncertain price movement of Bitcoin, which can be incredibly volatile, creates a lingering fear of the unknown in the minds of people.

Verifiable data from BTCmap.org (https://btcmap.org/map#0/-45.58329/-184.21875) suggests that at least 18,000 businesses accept Bitcoin across the globe. This number represents just a tiny fraction of the millions of businesses and commercial services scattered all over the world. So the real question is: why is Bitcoin's adoption as a medium of exchange low and slow despite what seems like a parabolic increase in Bitcoin awareness over the past few years? Why aren't people and businesses eager to accept payments in Bitcoin, especially since it is valuable and appreciates over time?

Let's face the hard reality: the world has been indoctrinated with the illusion of a stable Fiat currency (albeit it stealthily loses value over time) for decades, and human nature is inclined towards always seeking out the safer option. So, as much as Bitcoin is evidently valuable over time, the uncertainty of Bitcoin's price movement poses a huge challenge to businesses and service providers who might want to accept it as a means of exchange, especially for the fact that these businesses run on the Fiat system and need to be financially operational at all times. This then means that even if Bitcoin owners are willing to pay with Bitcoin, businesses and services may not yet be readily willing to accept it because of obvious reasons.

To solve the first issue, as Bitcoin builders, we should gear towards building solutions that make it easy and relatively less costly for people to get and own Bitcoin. Thanks to the Lightning network for providing a starting point. There have been other great solutions like Robosats, Bisq, etc, where users can buy Bitcoins for fiat through the lightning network; however, these solutions seem uniquely made for plebs and maxis. The bottom line is that we should build solutions that bridge the gap and open doors for anyone with no technical knowledge or even a proper understanding of Bitcoin to be able to own Bitcoin, just because they want to own it. And, no, I'm not talking about centralized exchanges and their IOU Bitcoins.

Secondly, it is important to emphasize that every monetary asset that has gone to become a global means of exchange was able to replace the old means of exchange by first mimicking it, either directly or indirectly. The majority of the world is still obsessed with the Fiat stable illusion, and it is still largely the best way for businesses to run and stay afloat, because they know (theoretically) that a $50 bill received for a product remains $50 bill for as long as they want to keep it.

So the best way to rapidly increase Bitcoin acceptance in stores, hence increasing Bitcoin's function as a medium of exchange, is to mimic the Fiat monetary asset directly on Bitcoin. Fortunately, a lot of solutions like Fedimint, Cashu, etc, are promising, but they entirely create a different network on their own, which requires users to begin to learn and understand how these new networks work. Another cumbersome task, if you ask me. Thankfully, there are emerging technologies like the "Hosted/Fiat channels" that offer a unique Bitcoin-backed Fiat derivatives right on the Bitcoin Lightning Network.

We have identified that for Bitcoin to grow as a means of exchange of value, there must be more people who own Bitcoin, especially average individuals who would readily spend it for their day-to-day living. But most importantly, for Bitcoin owners to be able to spend Bitcoin, there must be people willing to accept Bitcoin for their products or services, and they should be able to do this without having the Bitcoin price fluctuations affect their business's financial operation.

In the next article, we'll dive deep into exploring the different solutions and technologies that are trying to solve these problems and how we may begin to position them, especially ensuring that they maintain Bitcoin’s core ethos.

Keep Stacking Sats!!

Ugochukwu Chidire David Product Growth Lead Standard Sats @orion_davids on X

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