According to CoinDesk State of bitcoin report for Q3 2014 there are roughly 6.5 million bitcoin wallets in use. The market capitalisation (i.e. the total value of all bitcoins) in USD at this time was around $ 5 billion.
This makes bitcoin still a relatively small phenomenon from a global perspective – over 7 billion people live on our planet and most currencies have a significantly higher total value.
However, the growth of wallets and the number of users over the year 2014 was at 5x. This is very high. Because some users open wallets at multiple providers the number may be overstated. Nevertheless, the growth figure is big and if it stays that way for another two years there will be around 150 million users at the end of 2016. (Currently, there are ca. 21,5 million bitcoin wallets, significantly less than expected – updated 29.01.2018)
Factors that drive bitcoin adoption
In order for bitcoin adoption growth to continue, the bitcoin ecosystem needs to evolve further. What do you think will be the major factor that drives bitcoin adoption? This is surely a difficult question to answer. Many factors determine the relative advantage of bitcoin versus other alternatives.
Venture capitalist Marc Andreessen describes the dynamics behind bitcoin adoption as a four-sided network effect.
- Consumers who pay with bitcoin
- Merchants who accept bitcoin
- Miners who run the infrastructure and confirm transactions
- Developers and entrepreneurs who are building new products and services on top of bitcoin
Each of these parts is an important driver for bitcoin adoption. If there are not enough merchants, consumers won’t bother using bitcoins. If there are no professional services around bitcoin that make it feasible to accept bitcoins in larger organizations, they won’t do it. If transactions are not more efficient than with other payment methods, no one will use bitcoin.
Therefore all four sides are important for bitcoin adoption to grow. Everyone who is part of the bitcoin ecosystem contributes their part to more growth.
Why Bitbond is a driver for bitcoin adoption
Bitbond is a service that is built on top of bitcoin. Therefore we are in part 4. of the drivers for bitcoin adotion. But why is a lending service something that a new currency like bitcoin needs?
Borrowing and lending is as old as any economic activity in human history. In this regard the sharing economy is a re-invention of an old principle.
Somebody owns something that they don’t need for a certain period of time. But at some point, they want it back to use this thing themselves. If the lender gives this thing to somebody temporarily, they will usually want some compensation for this service. No matter if this thing is a bicycle, a car, an apartment, tools, machines – or money.
So when bitcoin establishes itself more and more as a wide-spread currency and more and more people use it like they use US dollars or euros (i.e. like they use money), there is also more and more demand for borrowing and lending.
At the same time, for some entities like enterprises a currency could not really serve as money if lending and borrowing didn’t exist in this currency. If you use one currency for daily payment transactions, but need to convert it to another currency to lend surplus cash for interest, the quality of this currency is relatively lower compared to a currency which you can lend out directly.
The same applies to borrowing. If you run a business where you need to borrow cash frequently to fund spikes in working capital (something that many merchants do steadily) it is inconvenient if you need to do the borrowing in another currency than your primary currency of payments. Therefore the quality of a currency will be better for you, if you can borrow it form someone directly.
Therefore if bitcoin wants to be an attractive currency, it must be possible to borrow and lend bitcoins. That’s why Bitbond and other lending services are an integral part of the bitcoin ecosystem and a driver for bitcoin adoption.