Bitcoin, Why should I care?
Muthu asked and I tried to answer!
No time to read? Don’t worry you can listen to the Audio Version!
In my last post, I asked for suggestions on what to write about and was glad to get one from a reader (thank you, Muthu). I have already answered this question through some of my previous posts. But it is a good idea to summarise here.
Reasoning behind the question
Firstly I think it's important to understand the reasoning behind this question. To do so, I must look at this from the perspective of my subscribers. Most of you are from India, and mostly my friends and family. Also, my subscribers fall under the middle to the upper-middle-class bracket of Indian society. Most of you have a bank account, use a debit or credit card and use UPI-based payment apps like Google Pay or PayU. Some of you may even have Crypto wallets. So you might be wondering, "Why should I care about trustless alternative digital currencies like Bitcoin and Etherium? What is all this hype about?"
The Indian story - banked vs unbanked
Let's dig a little deeper into the current situation in India. I want to discuss what has transpired since 2011. Did you know that the percentage of Indian adults (over 15 years old) with a bank account or a digital wallet was just 35% in 2011? Let's put this into perspective. The population of India was roughly 1.21 Billion in 2011. Based on census data, approximately 65% are adults. So in 2011, only 423 Million Indians had a bank account. Fast forward to 2017, to a whopping 80% of Indians had bank accounts. Our population had increased to 1.33 Billion. This means that 1.06 Billion Indian adults had a bank or digital wallet account by 2017. Imagine that, 2.5 times as many account holders in just six years!
I am sure that the launch of Paytm in August 2010 had a role to play. The introduction of payment banks by the Reserve Bank India made it even simpler for Indians to open a bank account for transactions. More recently, the launch of UPI by NPCI in 2016 facilitated further adoption of digital wallets and cashless transactions. UPI was considered the most revolutionary system of its kind at the time. It ensured a healthy ecosystem that protected and benefitted the consumer (Do let me know if anyone wants to learn more about UPI). But the biggest driver for growth in bank account holders was India's Jan Dhan Yojana scheme. Launched in 2014, the program had brought an additional 316 million Indians into the formal banking system by April 2022.
While all these achievements are remarkable, we shouldn't forget about the over 200 million Indians who still don't have access to a bank account. We continue to have the distinction of having the second-highest number of unbanked citizens globally.
What is the relevance to the Bitcoin question, you ask. Most Indians (80%) are spoilt for choice when making payments. So we fail to understand or recognise that it is controlled and governed by a few central agencies and intermediaries. Cash, Bank Transfer, Credit Card, Payment Wallet, UPI Wallet, etc. What would happen if these mechanisms failed? What would happen if economic sanctions drove the value of the Rupee down? What would happen if our accounts were frozen for National Security reasons?
Are we safe or should we be worried?
Of course, this is highly unlikely. Our government would never let this happen. Did you know that, in India, between 1913 and 1969, over 1800 banks failed? This, despite the formation of the Reserve Bank in 1934. After 1969, the number of bank failures reduced dramatically with stricter regulation, but that hasn't stopped banks from being embroiled in fraud. In recent years, we have been rocked by significant scams implicating large banks like the Punjab National Bank. In recent cases, central authorities have stepped in to support and ensure that the banks do not fail entirely. But, you, as an account holder, will not always be safe if your bank fails.
As a matter of course, I admit that I trust the current structure that we have in place in India. I feel safe and secure in the comfortable blanket provided by the government, the reserve bank of India and my banker.
After all, Bitcoin is hardly perfect. While it was initially conceived as digital currency, it doesn't satisfy any societal roles expected of money.
Bitcoin as a "Medium of Exchange"
With less than 90 million crypto wallets in existence, Bitcoin is hardly a suitable medium of exchange. The chance of finding someone who has a crypto wallet is less than 1.2% or, more specifically, 1 in 100 people. Finding someone willing to trade goods or services for cryptocurrency is significantly lower.
Bitcoin as a "Unit of Account" and "Store of Value"
On both counts, in the short term, Bitcoin fails. Bitcoin is a highly volatile asset. Since it is prone to speculation, the value of Bitcoin and almost all cryptocurrencies are constantly varying. So it is nearly impossible to use it as a "Unit of Account". For the same reason, it is an inadequate store of value, especially in the short term. Even over a long period, it is unclear if Bitcoin will be a good "Store of Value".
So why should you care about Bitcoin?
I believe that it is not essential for you to care about Bitcoin. However, if I were to buy Bitcoin, I would do so because Bitcoin has all the pieces in place for being a viable digital asset for the long term. It is a limited resource that can be exchanged for money. Like land, which appreciates over time, Bitcoin too will appreciate over time. But is this the right time to invest? I can’t answer that question; after all, I am not a financial advisor!
But, what you should care about are the underlying concepts and technologies that have been created because of the Bitcoin White Paper. Bitcoin and all crypto assets form just a tiny portion of the utility that trustless cryptographically secure networks offer. Fortunately for us, all the light is shining on this little section while we get to take our time and learn about the power of Web 3.0
Web 1.0, the pre Internet bubble web of the '90s and early '00s, was the wild, wild west. Most people online were just consumers, while a select few could create and publish online. Web 2.0, the current version of the Web, unleashed the masses. It enabled almost anyone with an internet connection to create and publish online. Unfortunately, Web 2.0 is controlled and dominated by a few companies (you know who I am talking about). They are the only ones benefiting.
Web 3.0, on the other hand, promises to democratise the internet. The future is for the masses, where we own our own data and decide how it's used. We will finally hold a meaningful piece of our digital existence and the internet. The innovation that led to Bitcoin is a pivotal peace in the run-up to this new internet. That is why you should care about Bitcoin.
If you are a new subscriber, and want to read my old articles, please checkout this short post - The CryptoMallu Journey So Far!