Ticket to Ride: Why Cash Access is Essential to Bitcoin Mass Adoptionbr>
When bitcoin was created in 2008 by Satoshi Nakamoto, they didn’t launch it at a banking conference, and the people of Wall Street weren’t early adopters. Likewise, the bitcoin whitepaper wasn’t shared around corporate boardrooms as the next best thing. Instead, bitcoin in the early days was envisioned as a form of protest. It was a new technology to be welded by the masses to temper the financial sector’s excesses and inequities. You might remember, at the time, through derivatives, tinkering and leveraging, big banks nearly crashed the global economy and many of them received government bailouts in return.
Bitcoin’s early adopters, including cypherpunks, privacy advocates and internet technologists, were attracted to the promise of what felt like pirate tech. The idea was to build something offering the world an alternative— as the bitcoin whitepaper stated, ‘a P2P electronic cash system.’ It was effectively a workaround to the abuses of those in control of the financial industry. Instead of gatekeepers and rent-seekers, bitcoin would leverage the power and scale of the internet, create decentralized and censorship-resistant networks and replace predatory finance with computation and programmable money.
And to a large extent, that vision is still what attracts people to the bitcoin space today. It’s the idea that finance and information technology could be created in the service of freedom and not the other way around – ‘The people’s currency.’ But, as the crypto space evolves rapidly and as the price of bitcoin reaches record highs, the reasons bitcoin was created are in danger of being forgotten. Instead of being in the hands of everyday people, wealthy individuals, banks and corporations hold the majority supply of bitcoin.
What’s happening right now is a lopsided bitcoin adoption. According to a recent study of bitcoin adoption and usage, published by crypto exchange Gemini, only 14% of the U.S. population owns cryptocurrencies (including bitcoin). Looking at worldwide adoption, that number drops to 1.3% globally. Sure, bitcoin and cryptocurrencies are still in their early days, so these adoption numbers make some sense in context. But maybe the more alarming stat is that 2% of bitcoin wallets own 90% of all the bitcoin available. In other words, there’s a massive consolidation of bitcoin at the top, which makes it hard to achieve the vision of a fair and equitable financial system championed by early bitcoin enthusiasts.
Bitcoin can hold to its promise of financial equity, but right now, bitcoin has an access problem. Unless more paths of entry via cash are created for people through easy-to-use cash to crypto on-ramps and off-ramps, bitcoin will simply benefit the elite and a few early adopters, and the inequalities of the status quo will continue.
Cash in the Transition to a Digital Economy
There is no doubt that the world is undergoing a massive digital transformation accelerated further by the pandemic. As a result, education, healthcare, commerce and other products and services have moved toward digital platforms and applications.
In terms of traditional money systems, the early movers in the race towards the digital claim to be “democratizing finance,” but they are little more than a fresh veneer on an old system of moving and controlling money. The genuine democratization of finance will happen when people holding cash can quickly move between crypto and legacy systems without requiring banking or credit intermediaries.
Bitcoin can miss a whole population of people in the U.S without this access, as many entryways to crypto require a bank account or credit/debit card. According to research from the Federal Reserve, roughly a quarter of American adults are underbanked or unbanked. Globally, that number is just shy of two billion. It’s time that the power and excitement about bitcoin and other cryptocurrencies move beyond tech conferences and CEO Tweets. For bitcoin to be revolutionary, it has to work for the people still relying on cash and cash-like products to make ends meet.
Without secure and easy to use on and off ramps between cash and crypto for these people, the financial digital divide will continue to grow. The people and companies with early access to bitcoin and cryptocurrencies will enjoy a massive upside. In contrast, the people that could benefit most— people transacting in cash and cash-like products—will continue to be left out of a once-in-a-generation wealth transfer opportunity. And without them, bitcoin will never reach mass mainstream adoption.
A Hedge or a Wedge
The need for broadened bitcoin access will become even more important as we wait to see the full fallout and ramifications of the pandemic and subsequent experimental monetary policy. Bitcoin has already proved there is a need and demand for economic alternatives. Since 2008, the Federal Reserve has been printing money at a record pace to help stimulate the economy. During the height of the Covid shutdown, the Federal Reserve printed 35% of all dollars ever created in just ten months. However, basic supply and demand principles tell us an increased supply of dollars will eventually weaken the dollar’s purchasing power.
And it is already happening. In June of this year, prices for consumer goods in the U.S. surged at levels last seen in 2008—the year bitcoin was launched amidst the last economic crisis. Also, in June, the consumer price index (CPI)—basically the price for essential consumer goods—rose 4.5%, a percentage increase not seen in the U.S. since 1991. Consumer price increases and growth of the CPI are both seen as forerunners to increased inflation. Sustained inflation will hit the people in the lowest income brackets the hardest.
When the economy is in a tailspin, the only way to protect assets is to find a safe store of value. If the ownership of stocks in the U.S. is viewed as a proxy for ownership of store of value assets, we see the same inequity elsewhere. According to Pew Research, in the U.S., 88% of high-income families own stocks, 44% of middle-income families own stocks and only 19% of low-income families have some kind of stock holding. Part of the issue is access, and undoubtedly, part of the issue is the challenge of saving (or hedging) when money is tight.
People living their daily lives in cash, through cash-to-bitcoin avenues, could harness the underlying deflationary aspects of bitcoin to hedge against the dwindling strength of the dollar. They could enjoy the benefits of bitcoin, including there being no minimum buy-in and the ability to manage funds from a simple app on the phone. In addition, the bitcoin market never closes, so the asset can be bought and sold on-demand.
Thankfully, the solution to enabling broad bitcoin access is simple. Bitcoin can be made widely available by crypto-enabling legacy financial systems and creating cash points of entry offered through the financial services people already use, like retail check cashing locations and kiosks at grocery stores. This would ensure on-the-ground paths to and from bitcoin via cash are convenient and easy to use and adopt.
Bitcoin has come a long way since it was first created in 2008. Today, there is an entire industry dedicated to figuring out the future of distributed finance. And while there are still significant challenges to solve, one of the most fundamental to bitcoin achieving its essential vision is to make sure everyone has a chance to participate, and avenues to and from bitcoin to cash are simple and accessible for everyone.