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Think Big. Move Fast.

Right now, more than 80% of Bitcoin volume is in the USD market. And many of the pundits commenting on Bitcoin, both positively and negatively, are in the US. So it is natural to assume that Bitcoin adoption will start first in the US. I think that that is a reasonable assumption, but it is one worth questioning.

The US is a relatively stable and strong economy, with good rule of law, good financial technology, low inflation and financial institutions that most people have faith in (although many Bitcoin enthusiasts would beg to differ). But these happy circumstances do not hold in every country in the world. And when these circumstances do not hold, the appeal for Bitcoin is stronger.

Some attributed one of the recent rises in Bitcoin price to worries in Cyprus and Spain about the fragility of their banking systems. There is a good documentary about Bitcoin in Argentina that highlights similar concerns, in that case driven by the economy and inflation.

Inflation, and hyperinflation, is one possible driver of Bitcoin adoption in a country. When holding the local fiat currency entails losing value by the day, citizens will seek alternatives. In Zimbabwe, hyperinflation drove the US Dollar became the de facto local currency even while foreign currency trading was illegal. So there is existence proof that high inflation can drive a whole country to adopt another currency, one that is completely disassociated from the central government. Despite Bitcoin’s volatility, it may serve as a better store of value than a rapidly inflating local currency.

High transaction costs are another possible driver of Bitcoin adoption. This can be especially severe when most transactions are small. Africa presents another example of adoption of a digital currency, or at least a digital form of payments. M-PESA, a payments system enabled on mobile phones, now constitutes 31% of Kenya’s GDP.

As the developing world leapfrogs to mobile, I think that it is likely that we will find some developing countries with the right combination of high inflation, high mobile phone penetration, high transaction costs and weak financial institutions to foster fast Bitcoin adoption. What do you think?

  • http://blogs.forbes.com/jonmatonis/ Jon Matonis

    Jeremy, just because majority of volume is BTC:USD doesn’t necessarily indicate that it is US-based volume. Currently, it is the most popular trading pair because it has the greatest liquidity, but it won’t always be this way. Liquidity begets more liquidity so an incumbent cross rate has an advantage. Even today, euros and other currencies are routinely converted into USD just to be able to trade in the most liquidity currency pair. Expect other currency pairs to increase in volume especially with increasing U.S. regulation.

  • http://twitter.com/sgornick Stephen Gornick

    Bitcoin’s exchange rate volatility will prevent it from being the best currency for these regions. For instance, when the exchange rate is low I am more likely to pay with USDs than BTCs — especially for a larger purchase (unless I can easily replenish my stash of coins at the same lower rate). If all I had was bitcoins, I would be forced to spend them as I would have no other savings or credit to draw from.

    So it would be bad if a person receives bitcoins as income and then a few days later a third of the value gets “vaporized”, especially right before a big bill is due for payment.

    But Bitcoin is still a great, low cost payment network.

    So what might work is to have an exchange account where I can pay in bitcoins but the funds originate from fiat (or some more stable commodity, such as gold) as part of the transaction. Here’s an example of an app for that: https://www.bridgewalkerapp.com

    Or Ripple, perhaps.

  • Somebody

    Actually there are many reasons why adoption will be very very very slow in other countries. One of them is the fact that other countries do not have that much entrepreneurial spirit in their laws. For example I am in small country in Europe, and have small business, and I can’t accept unconfirmed unregulated payment method for my services. You can’t show in your tax reports other payment/money wallets except for bank account and phisical cash. And if you don’t show that income in tax report then it is illegal income and you face charges. Even PayPal was allowed only few years ago.
    Many years will pass until I will be able to take money in bitcoins or whatever other currency, unless it will be directly integrated with real bank accounts.

  • http://twitter.com/Sprainiac Peter Moore

    THIS I agree with.

  • Philip Jones

    That’s really possible since bitcoin is widely accepted now. I believe bitcoin will legally be adopted in some countries than in US. Same case with bitcoin casino, poker players will easily turn to bitcoin poker casino tables to feed their hunger in poker games.