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Can Bitcoin become a dominant currency?

Bitcoin doesn’t really have any pronounced signs that most conventional assets do, such as expected income based on economic activity. Any signs of it being utilized as an international currency remain subtle as it struggles to find mainstream use. Some of the things that are preventing Bitcoin from becoming a universal world currency are the facts that a very high concentration of Bitcoins are owned by a very small group of people and that there are constant sharp fluctuations in its price.

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Which factors then can change Bitcoin’s dynamics and help it transition into widespread use as a currency?

1. If we want to identify Bitcoin as legitimate money, we cannot do so without a universal system of regulation.

Cryptocurrency circulation must obey certain rules and laws. Whether it will become a state monopoly or some kind of self-regulating private money system, it is difficult. The first case wouldn’t make sense, since nowadays national currencies begin life as entries in central bank accounts and government treasuries. The latter option will be perceived extremely aggressively by state banks.

2. Bitcoin must gradually spread among a larger number of owners.

What’s more, corresponding banking services (crypto-banking) have to appear. After all, it was the banks that destroyed the monopoly of gold as money, replacing it with credit money. Credit cryptocurrency is what will allow the expansion and increased circulation of cryptocurrencies. Without the formation of a crypto-financial infrastructure, even virtual, no cryptocurrency will find true economic and social success. This will not necessarily let us overcome the purely technological limitations of Bitcoin, but it will create bitcoin assets with the potential to multiply exponentially just as financial assets did when gold was the primary circulating financial asset. In the Middle Ages, banks did not create gold. They multiplied obligations, and often did so completely breaking away from the stocks of real gold in their vaults. This caused crises’ and failures, but this is how the modern financial system has gotten to where it is.

3. There must be a division of modern cryptocurrencies into potential currencies and crypto assets, which are primarily the tokens produced during the ICO’s.

Cryptoassets must gradually acquire the features of securities and financial instruments. Not in form, but in content. Nowadays, when issuing tokens, the issuers expect that they will grow in price, like any other cryptocurrency, which, in fact, attracts investors. In the future, they will have to think about paying their investors regular remuneration from the income of a particular activity. Tokens, in their essence, should be like shares or bonds, meaning they must share a lot of the characteristics of these classic financial instruments. Above all, of course, is regular payments based on revenue.

4. People have to start believing in Bitcoin.

Not only in the dark corners of the Internet, but also among the general population. It must be integrated into legal economic activity, meaning it must begin to push out conventional means of payment and begin replacing them. What will happen to the accumulated debt in society? What about the reserves? We can think of two rather extreme developments. The first is the complete destruction of the existing economic and financial system with the state in control. The second is the transformation of private crypto assets into an element of a hierarchical economic system that will exist in an unknown format we can’t even think of today. We are quite far from that achievement as of now.

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5. The cost of Bitcoin must stabilize.

Of course, the price will continue to change, as the rates of existing currencies do, but these changes cannot be equivalent to +200% in value in a month.
As a matter of fact, it does not matter how much Bitcoin will cost in general. The main nuance here is that its price fluctuations have to become similar to the fluctuations of classical world currencies. The demand for Bitcoin as a payment and investment vehicle will most certainly increase its value.

If Bitcoin, or any other prominent cryptocurrency for that matter, manages to achieve and uphold most of these key points, then it will undoubtedly have a legitimate potential of becoming a dominant currency with widespread use. Until then, we can only observe.