Many issues complicate Bitcoin’s use as a true everyday currency, but one fatal flaw stands above the rest:
⚠️ Bitcoin’s price volatility makes it unusable as a stable medium of exchange.
A currency must reliably store value in the short term so that:
buyers know what they’re actually paying,
sellers can predict revenue,
wages and contracts can be set without constant renegotiation.
Bitcoin fails this because its price fluctuates wildly—often by several percent within hours—due to factors like speculative trading, thin liquidity, macro news, and lack of a central stabilizing authority.
Result: neither party wants to set prices in BTC, and they universally default back to fiat as the real pricing unit.
Other serious flaws (but not as fatal as volatility)
1. No elastic supply → no macroeconomic stabilizer
Bitcoin’s fixed supply prevents:
adjusting to changes in demand,
limiting deflationary spirals,
smoothing economic shocks.
A currency that cannot be expanded in a crisis is a poor economic tool.
2. Transaction throughput is extremely limited
≈7 transactions per second is far below what a global currency would need. Even with layer-2s (Lightning, etc.), reliability and liquidity issues remain.
3. High and unpredictable fees
Fees spike during congestion, making small purchases impractical.
4. Irreversibility makes consumer protection hard
Chargebacks, fraud resolution, and dispute mediation are difficult because transactions can’t be reversed.
5. Tax and regulatory complications
In most countries, every BTC transaction triggers capital gains tracking—impossible for everyday spending.
Summary
Bitcoin works well as:
a speculative asset,
digital gold,
censorship-resistant value storage.
But its core economic function as a medium of exchange is broken because a currency must be stable, and Bitcoin—by design—cannot be.
If you want, I can compare this with stablecoins, fiat currencies, or alternative crypto models.
You said:
compare this with stablecoins, fiat currencies, or alternative crypto models.
ChatGPT said:
Below is a clear comparison of Bitcoin vs. Stablecoins vs. Fiat vs. Alternative Crypto Models from the perspective of being a usable currency.
1. Bitcoin (BTC)
Strengths
Censorship-resistant; no central authority.
Hard-capped supply → long-term scarcity.
Longest security track record in crypto.
Fatal flaws as a currency
Extreme volatility (most important).
Throughput limits (7 TPS).
Unpredictable fees.
Deflationary bias, discouraging spending (people hoard appreciating assets).
Tax treatment (capital gains on each spend).
Result:
Great as “digital gold,” poor as day-to-day money.
2. Stablecoins (USDT, USDC, DAI, etc.)
Stablecoins attempt to keep a fixed value (usually $1).
Strengths
Low volatility, so they behave like real money.
Work well on blockchains: fast settlement, global transferability.
Great for payments in crypto ecosystems.
No need to price goods in BTC; use $1 instead.
Weaknesses
Depends on the type:
(a) Fiat-backed stablecoins (USDT, USDC)
Issuer must hold real reserves; you’re trusting a company.
Can be frozen, blocked, or censored.
Subject to regulation, banking risk, opaqueness of audits.
(b) Crypto-collateralized (DAI)
More decentralized, but depends on overcollateralization.
Still not fully immune to custodial exposures (e.g., DAI partly backed by USDC).
(c) Algorithmic stables (UST-style)
Most have failed due to reflexive death spirals.
Stability requires strong demand + smart incentives, which often break under stress.
Result:
Excellent for payments within crypto, but their stability relies on mechanisms that reintroduce trust or risk.
3. Fiat Currencies (USD, EUR, etc.)
Strengths
Very stable short-term value → ideal for contracts, wages, pricing.
Legal tender: everyone is required to accept it.
Government + central bank provide economic stability tools (QE, interest rates, etc).
High throughput systems: Visa, ACH, instant bank rails.
Weaknesses
Inflation risk, sometimes severe (depends on country).
Centralized; can be censored or frozen.
Cross-border transfers are slow and expensive.
Not programmable natively (though CBDCs may change this).
Result:
Fiat is currently the most functional form of currency for daily use, but not the most free or hard-money-like.
4. Alternative Crypto Monetary Models
A. “Flatcoin” concepts (inflation-resistant stablecoins)
Pegged to purchasing power rather than a fixed $1.
Goal: keep stability relative to inflation.
Pros:
Could preserve real value.
More decentralized than fiat-backed stables.
Cons:
Hard to design and maintain.
Requires reliable inflation or CPI oracles.
B. Governance-adjustable supply tokens
Projects that can expand or contract supply algorithmically.
Pros:
Mimic central bank tools without human intervention.
Could stabilize prices.
Cons:
Little real-world adoption.
At scale, they resemble algorithmic stablecoins → failure risk.
C. Highly scalable base-layer chains (e.g., Solana, some L2s)
Not a currency model but infrastructure that makes crypto payments smoother.
Pros:
Low fees, fast finality.
Makes stablecoins more usable as currency.
Cons:
Doesn’t solve volatility or economic stability by itself.
D. Commodity-backed tokens (gold-backed stablecoins)
Pegged to gold rather than fiat.
Pros:
Long-term hedge against inflation.
More stable than BTC.
Cons:
Requires trust in custodians.
Gold price still fluctuates day-to-day.
So which model is closest to a functional currency?
For everyday use:
Fiat-backed stablecoins (USDC/USDT)
→ Practical, low-volatility, widely accepted in crypto.
For long-term sovereign money:
Bitcoin-like hard money
→ Strong store of value, weak currency.
For theoretical optimal crypto money:
Flatcoins or decentralized stablecoins
→ Haven’t fully succeeded yet but address both inflation and volatility.