CoinStove Staff
What is Hyperbitcoinization?
Hyperbitcoinisation is the point when Bitcoin will take over from fiat dominance in the global economy. In this case people will prefer to use Bitcoin as a currency for payments. Additionally products and services will be priced in Bitcoin.
Why Hyperbitcoinisation Could Happen
People are gradually adopting Bitcoin for different reasons. Some people want to buy it purely for investment purposes. Of course because they know it has gone up and other people have made money from it. So they do the same to make some extra money themselves.
However there are very fundamental reason why Bitcoin has value and why the value of Bitcoin keeps increasing. They are outlined in our article what makes Bitcoin valuable. It might come as a surprise to some people that there is actually a lot to say about this topic.
Reason #1 – Innovation
This is because Bitcoin has a rigid rule based monetary system. No one person or entity can alter Bitcoin and corrupt it to suit their needs. As a result it has retained its value or keeps increasing in value. That is to say even though every now and again the price crashes.
Reason #2 – Bitcoin Is Not Government Controlled
Money printing is currency debasement. It is why your currency keeps loosing purchasing power. Hence why you are able to buy less with it over time. For example:
Reason #3 – Bitcoin Usability
and at a much lower cost. That means that it is perfect even for micro transactions like for example to buy your morning coffee.
For example the developers have released the lightning network. This means that Bitcoin will accommodate billions of people on its network with ease. Additionally at a much lower cost.
That means that it is perfect even for micro transactions like for example to buy your morning coffee. In fact the lightning network is doing well as detailed by lightning labs.
The Impact of Inflation
The impact of inflation is a big deal. Over time people are not too concerned about inflation. However if inflation starts increasing quickly, people will feel uncomfortable. Especially for the ones that are living pay cheque to pay cheque will become more of a struggle.
Most importantly a currency that is used for day to day payments is meant to stay stable. However if it loses value quickly people will start to look for better options.
Fiat currencies have lost value over the last decade, but some have lost more value than others. For example here is the amount of dollars the Federal Reserve has printed over 2020 and 2021.
High inflation is a symptom of a larger problem. It is created by governments that would have gone into money printing overdrive.
Money in the system should only increase with an increase in productivity. Otherwise money printing like the example above could lead to a crack up boom. Hence inflation will increase a lot.
As a result people will look for assets that will maintain their purchasing power to shield themselves. Like what is detailed here in how to protect yourself against inflation.
Hence this is where hyperbitcoinisation comes into play. People gradually start not trusting any other government backed currencies. So they will look for safety in Bitcoin because of two main reasons:
- The Bitcoin blockchain has a fixed supply of Bitcoin. Hence it is scarce.
- The blockchains does triple entry accounting every time a transaction gets processed. Hence the system makes sure there is no fraud happening on the network. This makes the system honest and gives confidence to people that use it.
Hyperbitcoinisation is Already Happening
A hyperbitcoinisation scenario does not suddenly happen out of thin air. It is a slow process that starts happening faster and faster by time. Here is a tweet that shows how the process is panning out so far:
In fact here is an article from 2013, Claim: Bitcoin is Basically for Criminals from the Business Insider. There are still articles like this that get released every so often, but not so much these days.
It is also worth me pointing out that times have changed. So although criminals might use Bitcoin for their crimes some were caught by authorities. This will make criminals think twice before using Bitcoin for anything dodgy or stealing it.
So this shows how the Bitcoin space is developing and transitioning. However not to dwell on just one point, the hyperbitcoinisation process is underway. More and more people are buying it and Bitcoin is getting more attention from different parts of society.
The Point Are We At
The adoption of money can happen in either of two ways. Firstly government can mandate it and regulate it. Or the second option is that the population could adopt its own currency.
Of course governments could also regulate a currency once the population adopts it out of their own choice. With the second option we would see the money go through 4 phases of adoption.
The 4 Phases of The Adoption of Money Are:
- It starts as a collectable
- Becomes a store of value. This is where people hold onto the money because it keeps going up in value.
- Becomes a medium of exchange. This is where payments are made with the money. This also means that other people are willing to accept it as a form of payment.
- A unit of account. This is the point of hyperbitcoinisation. When most products and services will be priced in Bitcoin and not fiat.
At the moment Bitcoin is still in the store of value phase. It will slowly start to become a medium of exchange. Especially if more companies accept it as payment or countries legalise it as a form of legal tender.
For this reason we still need to ‘cross the chasm’ for Bitcoin. The chasm between the early adopters to the early majority. This is quite a task in and of itself. However it has happened quite often before. In fact it is a normal process for disruptive technologies.
Technology life-cycle
The more people start to see the value of holding Bitcoin long term the more it will get adopted.So they have relatively good confidence that Bitcoin is here to stay and they lose confidence in their fiat currency.
Bitcoin will also need to become less volatile. Firstly because a lot of people cannot stomach volatility. Secondly it is hard to price things in Bitcoin when the price goes up and down so much.
However you can expect volatility to decrease over time when more people start to adopt it. This is because Bitcoin’s market cap by that point will be much higher. So it will take very large market buys and sell offs to make any difference in the price.
Hyperbitcoinisation on The Corporate Level
The company that started the trend to buy Bitcoin is Michael Saylor’s Microstategy. Michael came onto the stage with strong confidence in Bitcoin after he spent hundreds of hours studying it. Hence why he added it to his company’s balance sheet.
That move, as well as the influence of some other Bitcoin advocates got a lot of people thinking. In fact there are many other companies that have also done the same like for example Tesla and Square.
There are also many other companies that are publicly listed that have Bitcoin on their balance sheet. It is not a large amount of companies, but it does show that there is interest.
There are certainly going to many more companies that will do the same. However they need to get their paperwork in order to add Bitcoin to their company balance sheet. This may take time because of approval within the company corporate structure and compliance.
Hyperbitcoinisation on The Country Level
Developed countries were never going to adopt Bitcoin first off. Their systems are developed and well-regulated with a system that works for the people in power.
Hyperbitcoinisation needs to happen in small and nimble countries that can easily pivot to Bitcoin. Like for example the ones that do not have a sovereign currency of their own. As a result they use another country’s currency like the US dollar.
The best candidates are also the ones that have a large portion of their population that is unbanked. That is to say people that do not have a bank account. So their only option is to rely on cash in hand.
The first country to adopt Bitcoin was the South American country of El Salvador.
Sourced from CoinDesk
El Salvador also kept the US dollar as legal tender so the people could use either or. So it is not like El Salvadorians were forced to just use Bitcoin.
In fact this was a good move. Since this was the first ever trial run of Bitcoin as legal tender it has had a bumpy ride. This is because the El Salvadorian government supplied the Chivo wallet which unfortunately had many bugs.
As a result it has left a negative impression on the people that used it. However it is quite normal for something new to have issues so it’s not something concerning. By time the government will iron out the issues which will help drive Bitcoin adoption.
Most importantly when the US dollar will have high inflation. It will cause people to switch to using Bitcoin on a more permanent basis when the time is right.
Other Countries
So far El Salvador has inspired a few other countries to think about adopting Bitcoin. There are other South American countries that are mulling it. In fact Bitcoin Beach over in El Salvador inspired Costa Ballena an offshoot in Costa Rica.
Costa Ballena is another beach area, but there are also whole countries thinking of adopting Bitcoin. Panama is also looking to legalise Bitcoin and another 8 cryptocurrencies with no limits.
The Central African Republic has also adopted Bitcoin as its official currency. So the dominos are slowly falling one by one.
Hyperbitcoinisation Conclusion
To conclude the world could potentially hyperbitcoinise. Dan Held who is Kraken’s growth lead thinks that hyperibtcoinisation could happen within 10 years. Saifedean Ammous an Austrian economist who wrote The Bitcoin Standard believes it will take 15-16 years.
Hyperbitcoinisation is a straight forward process. Bitcoin has economic benefits which makes it attractive to invest into. At some point other people or countries will not want to miss out on the opportunity.
As a result others will be forced to adopt Bitcoin because they will not want to get left behind. The process will continue until more developed countries cannot ignore the trend any more. Additionally they would want to benefit from the incentives themselves.
Of course not everyone agrees that hyperbitcoinisation will happen. This is because they think we will go to a gold standard instead to stabilise the currencies. Hence back to the tried and tested yellow metal that has kept its value for over 5000 years. In fact you can see the Bitcoin versus gold debate still going strong.
Some crypto enthusiasts believe that Bitcoin will do well, but is not the solution for everyone. Their reasoning is that there are other cryptocurrencies that are more private than Bitcoin. Privacy is really important when it comes to sound money.
The question is which cryptocurrencies would get adopted. The cryptocurrencies would need to be good to get adopted. So unless that use case is strong then Bitcoin is going to end up the winner.
