Can Bitcoin Become a Reserve Currency?

It’s no secret that Bitcoin has been through ups and downs over the past decade of its existence. However, this virtual currency always gets innovative solutions to its challenges from the free market. Currently, Bitcoin is the king of the crypto world because it’s the best-performing digital asset.

But its critics argue that Bitcoin’s relevance, adoption, and usability will eventually disappear. Nevertheless, Bitcoin’s ability to achieve its current value and status within 12 years is a remarkable success. While this virtual currency began as a peer-to-peer payment system, it’s slowly acquiring mainstream adoption.

Today, institutional investors like Paul Tudor Jones, Bull Miller, and Stanley Druckenmiller endorse this virtual currency. Mass Mutual and MicroStrategy have also jumped on the Bitcoin bandwagon. So, can Bitcoin become a reserve currency?

How Bitcoin Could Become a Reserve Currency

Central banks are contemplating Bitcoin, with some exploring the possibility of developing theirs. For instance, the People’s Bank of China has developed a digital asset to compete with Bitcoin and other virtual currencies. The goal is to convert China into a digital financial system. Perhaps, you can learn about this digital currency of bitcoin prime trading app. China is currently testing the digital Yuan in significant cities with transactions worth more than $300M.

Despite these developments, Bitcoin dominates the crypto market. Perhaps, that’s because of its first-mover advantage. Today, Bitcoin’s market cap is around $645, significantly more significant than the Yuan. But how does this give Bitcoin the scale potential to the point of becoming a reserve currency?

Bitcoin’s hardcode is eight decimal places. If the USD and BTC exchange rate were $1M/1BTC, every Satoshi’s value would be $1, meaning Bitcoin’s market cap would be around $19T as per the current circulation supply.

The critical mass for Bitcoin is its primary advantage over the other virtual currencies. It’s popular with a more significant network effect. Also, Bitcoin miners can upgrade and update its protocol. And this helps Bitcoin to tackle challenges in the future.

While using Bitcoin as a transactional currency may not be easy, it’s potentially a plausible reserve asset. That’s because it’s essentially the first successful form of a global currency. While people purchase it using their local currencies, they can buy items and pay for services universally.

Bitcoin Could Rule All Other Coins

The blockchain network’s inability to scale and meet the digital, global economy needs was its primary challenge to achieving mainstream adoption. Ideally, many people saw Bitcoin as a painfully slow transaction method. However, some users might argue that speed is not Bitcoin’s ultimate goal. Instead, its primary purpose is to act as an inflation hedge and value storage. However, the Lightning Network seeks to solve the speed problem. This network offloads capacity from the Bitcoin blockchain onto a second payment channels layer.

Broadcasting every transaction to the whole network and including it in the Bitcoin blockchain brings the scalability issues of this virtual currency. Using the Lightning Network enables two entities to start a payment channel to facilitate frictionless and instantaneous payments. Thus, the network broadcasts transactions to the whole chain only when closing or opening a channel.

Essentially, this network makes the efficacy of the initial Satoshi Nakamoto vision plausible because somebody can make a case for Bitcoin as a digital, viable currency that people can use every day across the world.

With the rising adoption of the Lightning Network, Bitcoin will achieve initial Satoshi’s intentions of serving as a payment method and value storage. And this explains why Bitcoin dominates the crypto world. With the rising global adoption, Bitcoin could become a reserve currency of the world in the future.  

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