Bitcoin Risk Management Study Spring 2014

The document makes valid points, but fails to emphasize the biggest risk to bitcoin: lack of consumer adoption. It's not about merchant adoption. It's not like consumers are just dying to find a way to spend their bitcoin. They obviously aren't, because well they already have a system that works very well for them in most cases (the CC system).

Bitcoin, like many new innovations before it, may "die" in the chasm. http://www.linuxjournal.com/files/linuxjournal.com/linuxjour...

Not because it's not being adopted by merchants (merchants couldn't care less about bitcoin, they receive fiat currency), but because it doesn't solve a problem for consumers. Consumer adoption is the real metric we should be keeping track of. And seeing that transaction volume is stagnant or even declining, that metric is not in good shape. Merchant adoption is just pure marketing at this point, and I believe that companies such as Coinbase and BitPay that are pursuing merchant adoption aggressively are in the wrong business.

Bitcoin is really, really struggling to find a relevant use case, especially with consumers. Regular consumers have absolutely no reason to use bitcoin. The "1-click" payment and 1% price discount are not appealing enough to the average Joe who already gets 1-2% cash back, airline miles, and consumer protection on his credit card (and 1-click checkouts on many e-commerce platforms). And more regulation isn't helping the "crypto-anarchist" decentralization angle either.

Bitcoin is great, for merchants.

But payments is a two-sided market. A winning product must appeal to both sides, the buyer and the seller. Bitcoin appeals to the seller at the expense of the buyer. Even if the blockchain technology overcomes all of its flaws, we would have bootstrapped a value exchange system that does not offer greater benefit over the one that exists today.

Many are making the flawed and simplistic analogy of comparing bitcoin/blockchain technology to the early days of the Internet... That analogy is not valid. When it comes to money, consumers actually want a central authority. They want to be insured and cuddled and protected and not run the risk (however small) of being criminally liable for transactions and have someone to speak with if they make an erroneous transaction or have their card stolen. And they can already do all that, which makes it tremendously difficult to compel them to change the habits they've had in forever to adopt a system that does not provide them with significant advantages.

I've been in bitcoin since 2011 and used to be a big believer, but I don't see bitcoin or blockchain technology gaining traction with consumers, because it simply doesn't solve a problem for them.

It could be destined to eternally remain a store of value (like gold) or find targeted applications (like machine-to-machine payments). The underlying blockchain technology could be of more use if adopted by the banking system, for example, but that is still far in the future.