Yesterday, one main crypto media headlines was about the alleged deal between the global coffee shop chain Starbucks and the cryptocurrency processing platform Bakkt. According to a tweet by the Block founder Mike Dudas, the agreement involved Starbucks getting entitled to a generous equity share in Bakkt in exchange for the commitment to accept Bitcoin for payments in its shops.
Zycrypto further reported that it was unclear when Starbucks would actually launch the scheme as it was unclear when Bakkt itself would launch. Marco Cavicchioli writing for Cryptonomist.ch added that Starbucks will not actually handle any BTC, with Bakkt instantaneously converting them into fiat.
It is no wonder that the alleged partnership has attracted so much attention because, as noted Bitcoin community member Alec Ziupsnys rightly noted in a tweet, in addition to being a global coffee shop chain with around 100 million customers, Starbucks is also a major mobile payment processor that processes more transactions per day than Apple Pay and Google Play.
Finally, Nick Chong in an article for Blockgeeks drew attention to the fact that Starbucks may be not the only major retailer that may make a foray into Bitcoin or other cryptocurrency payments. He pointed at the recent bombshell decision by Kroger dropped the support for Visa payments citing excessive fees and the interest by Kroger in the Lightning Network (LN) reported by Anthony Pompliano, who heads Morgan Creek Capital, a digital asset index fund.
One of the commenters asked Ziupsnys on Twitter how the Bitcoin blockchain could process the potential multitude of Bitcoin microtransactions given that LN is not ready. Ziupsnys’s response was that Bakkt could just used a centralized off-chain solution with competitive fees. While this may raise questions about the compatibility of such a centralized solution with the Bitcoin ethos, Bitcoin supporters will probably rightly answer that this could be a backstop measure, until second-layer technologies like LN are mature enough to replace it. It is important to get the consumers onboard, first.
Does the interest from Starbucks and potentially other major retailers mean that Bitcoin is standing on the verge of mass, or at least significant, adoption in everyday economic activities, though? Perhaps, not so fast.
Aside from the technical issues like scalability, the core problem that Bitcoin and other existing cryptocurrencies face on the road to mass adoption by ordinary consumers may have been best formulated by economist Lawrence H. White. He noted that while Bitcoin has the advantage of not being manipulated by central banks, it has a rigid currency supply model than does not allow it to adapt to changes in demand, hence, the latter manifest themselves directly in the price.
As an interesting analogy, White pointed to the historical experience of problems caused by a currency with rigid supply in the 19th-century U. S., despite the absence of central banks. Back then, the economy was significantly influenced by the seasonal factors as agriculture played a much more significant role than today. When the harvest became available to the markets in autumn, this caused spikes in the demand for money but the system dominated by small local banks and later also restrained in its ability to boost currency supply through the treasury bond reserve requirements could not respond adequately, which caused recurrent crises. An even bigger downturn struck when the Federal government quickly repaid most of the Civil War debt, reducing the banks’ available reserves for issuing bank notes.
However, White is not necessarily right to imply that a relatively rigid supply is problematic for a currency at any stage of its development. If a cryptocurrency like Bitcoin ends up becoming one of the key means of exchange around the world, for instance, given that we no longer inhabit an economy dominated by the agricultural cycle and there will be no sudden top-down-induced contractions in supply, the hard-money nature of currencies like Bitcoin will probably not present a serious issue.
This is not true, however, with regard to Bitcoin in its current state because it is, to a large degree, not a means of payment but a speculative financial asset. It is the changes in the demand for it on financial markets that result in its high price volatility. And their outsized effects are not going away any time soon, except, perhaps, in an unrealistic scenario where a major country will adopt Bitcoin as legal tender.
Whether the volatility obstacle can be overcome in some way by Bitcoin remains to be seen. Other cryptocurrencies like Ether may, perhaps, have an advantage over it, even though, ironically, they have not been promoted much as means of payment. The for this is that they can be used not just as a means of payment or speculative assets but also to enable consumers to take advantage of decentralized applications powered by smart contracts. If the benefits are sufficient to outweigh volatility, the increased usage may actually reduce volatility and pave the way to the use of such cryptocurrencies as means of payment.
Nonetheless, this prospect remains relatively remote at the moment, as none of the smart-contract-enabling public blockchain platforms has so far achieved significant adoption for any of its DApps. In addition to this, Bitcoin sidechains like Rootstock could ultimately provide similar functionality for Bitcoin, too. As with all the potential major promises of blockchain, we will still have to wait to see how they will play out.