In a little over a month since a hearing at which U.S. federal reserve chairperson Jerome Powell characterized Bitcoin as a "speculative store of value, like gold," there has been a fairly broad discussion within the cryptocurrency community about the future of the world's most dominant digital coin. That discussion has centered around store of value versus utility.

Over the last month there have been plenty of arguments in favor of Bitcoin being a safe haven for investors. Those who hold such a view look at Bitcoin in much the same way as Powell does. They see it more like gold and silver than U.S. dollars. They see it more as an investment than a payment system.

Questioning Bitcoin as a safe haven leads to the biggest question that still remains unanswered: will Bitcoin ever become the universal payment system Satoshi Nakamoto first envisioned a decade ago? The only logical way to approach an answer is to look at how Bitcoin is doing today.

15K and counting

According to the Coinmap.org website, more than 15,200 merchants worldwide now accept Bitcoin payments. That is a minute number when you consider how many merchants accept Visa and MasterCard. Yet it is still pretty impressive for a digital currency. Moreover, adoption is growing slowly but surely.

Cryptonews contributor Simon Chandler wrote on 10 August (2019) that Bitcoin's year-on-year growth as a payment system was up 25% at the start of 2019. Again, that's not bad. A lot of industries would give an arm and a leg to enjoy 25% growth. Yet that doesn't mean much in the broader scope of the cryptocurrency arena.

Why? Because other coins have achieved even better growth. According to Chandler, Dash enjoyed growth of 840% in 2017. While just 500 merchants accepted Dash at the end of that year, 840% growth is still a lot better than 25%.

Despite vastly different growth rates, Bitcoin and Dash both demonstrate that merchants are slowly but surely getting on board with cryptocurrency payments. It could be that Bitcoin only maintains its dominance due to brand strength and its attractiveness as a store of value.

What you can do with gold

In the ongoing debate over where Bitcoin finds its value, there is a beautifully simple point that seems to be constantly lost. Let us assume that Bitcoin's greatest value is to investors who use it as a safe haven. They invest in Bitcoin in the same way they invest in gold. Following the same logic that is applied to gold, using Bitcoin as a safe haven undermines its value as a payment system.

In other words, you cannot take gold down to the grocery store and buy a loaf of bread and a gallon of milk. As valuable as gold is, there is no viable way to spend it like money. But therein lies the difference with Bitcoin. You can use Bitcoin to buy things. More than 15,000 merchants have already said so.

This key difference keeps alive the possibility that Bitcoin can be both a safe haven for investors and a day-to-day payment system for casual coin owners. It doesn't have to be either/or. Rather than debate store of value versus payment system, the more important issue might be whether or not Bitcoin has the technical capability to become a dominant payment system.

Competing with Visa and MasterCard

It would be nice if Bitcoin could actually become the payment system it was always intended to be. But in order for that to happen, it has to be able to compete with every other payment system. This includes credit card giants Visa and MasterCard.

Between them, Visa and MasterCard cover nearly every inch of the globe. There is virtually nowhere in the developed world where you cannot use your card to purchase what you need. Bitcoin adoption is lagging way, way behind. It is not even remotely close. So what's the issue? Actually, there are several.

At the top of the list is speed. Visa claims its network handles upwards of 150 million transactions every day. They say their network is capable of managing 24,000 transactions per second. The Bitcoin network couldn't even begin to approach that number on its best day. It just isn't fast enough.

The biggest challenge in Bitcoin's case is the way transactions are processed and added to the blockchain. Nodes have to complete a tremendous amount of computational work to produce a new block of data. As such, it takes up to 10 minutes to complete a Bitcoin transaction when traffic is heavy. Visa can process that same transaction in seconds.

In truth, it takes longer for the Visa transaction to settle. But settlement is something that goes on in the background. It doesn't matter to consumers standing at the checkout line. They want to tap or swipe their cards and be on their way. Similar speed just isn't possible for Bitcoin in its current state.

It is expected that the Lightning network will speed things up once fully implemented. This network utilizes new technology that separates smaller transactions in a separate layer before combining them into a single transaction on the primary layer when volume reaches a certain size. But even if the network proves successful, there is still another issue Bitcoin has to contend with.

A scalable payment system

Successfully addressing the speed issue only goes so far. The other problem Bitcoin suffers from is scalability. It just isn't there. It is true that Bitcoin's network is still the largest and robust among all crypto networks, but it still doesn't hold a candle to Visa and MasterCard. That has to change before Bitcoin can become an everyday payment system.

Visa and MasterCard can scale their operations up or down at will. Not only are their networks vast, far-reaching, and robust, they also have the support of nearly every other financial network in the world. Visa and MasterCard are ubiquitous because they are scalable, but they are also scalable because they are ubiquitous.

It doesn't seem possible that Bitcoin could achieve the same level of scalability without profound changes in its mechanics. The fact that Bitcoin is halving in 2020 only makes the scalability challenge even bigger. Once it halves, miners will earn half as much for doing even more work. That likely means fewer miners as smaller operations cease and mining becomes ever more consolidated in the largest mining operations.

That does not make for much scalability. The more mining is consolidated, the more tightly controlled it becomes by those miners. And with every new coin mined comes more work for the network's nodes. Everything becomes harder as time marches on and Bitcoin approaches end of supply. Meanwhile, Visa and MasterCard continue with business as usual.

The stablecoin issue

Let's say that by some stroke of technical genius Bitcoin is able to overcome the speed and scalability issues. There is still one more problem preventing its adoption as a day-to-day payment system: the emergence of stablecoins. Indeed, you could make the case that stablecoins are the biggest threat to Bitcoin's future for daily payments.

The stablecoin's claim to fame is its volatility - or rather, the lack thereof. Stablecoins are purposely designed to maintain stability by tying them to other assets of known value. For example, USD Coin (USDC) is a stablecoin backed by the U.S. dollar. A single coin is worth $1.00. As the U.S. dollar goes, so does USDC.

No investor will ever get rich off USDC. Yet that doesn't matter for the purposes of daily payments. A stablecoin like USDC is more palatable to consumers because its price is not up and down every other day. That is important when you are looking for a vehicle by which to make day-to-day payment.

It is true that there currently is no stablecoin with the same level of adoption as Bitcoin, Dash, and a couple of the other big-name digital currencies. But if cryptocurrency is ever to compete directly with Visa and MasterCard, stability has to be there. Stablecoins are in the driver's seat here because they are offered with stability already built in.

The future is anyone's guess

After reading all of this, we hope you do not misunderstand the point of this post. The intent here is not to say that Bitcoin will never become a day-to-day payment system. It may. Bitcoin is certainly valuable to investors who see it as a safe haven similar to gold. That is a positive thing in that it could lead people to start using it as a payment system if the price levels off and stays that way for an extended amount of time.

The point being made here is that simply assuming Bitcoin will eventually be a day-to-day payment system is to overlook its obvious flaws. The fact is that no payment system is perfect. All have flaws. But the ones that dominate are the same ones that have addressed their flaws the most successfully. If Bitcoin is to ever compete with traditional payment systems, the people behind it have a lot of work to do.