Q&A: The commercial use of Bitcoin

23 May 2024

Bitcoin: How did it start, how has it progressed, and where is it going?

14 years ago yesterday [22 May], Programmer Laszlo Hanyecz made history by purchasing two pizzas for 10,000 Bitcoin widely considered to be the first commercial use of the cryptocurrency token.

Over the following decade, the value of Bitcoin skyrocketed and the same 10,000 that were worth approximately US$30 at the time of the pizza purchase would be worth more than US$668m today. The growth of Bitcoin’s value has earned it the title of “best performing asset class” for eight of the last eleven years.

Saffery Trust Client Director, Siobhan Moret, shares her thoughts on Bitcoin’s progression and what we can expect for the commercial use of cryptocurrency.

What is the idea behind Bitcoin?

Borne from dissatisfaction with traditional financial institutions, including centralised banks, and fuelled by growing distrust in government following the 2008 Global Financial Crisis, Bitcoin (BTC) emerged as a revolutionary concept of what money could, and should, be in a ‘fair’ world, offering a secure and transparent, decentralised alternative.

In a world still reeling from the Financial Crisis, it is not difficult to see the appeal of a currency that didn’t rely on traditional finance routes. An online community of like-minded investors and enthusiasts formed, with the Bitcoin Reddit page (created in 2010) declaring, “…bitcoins are issued and managed without any central authority whatsoever: there is no government, company, or bank in charge of Bitcoin. As such, it is more resistant to wild inflation and corrupt banks. With Bitcoin, you can be your own bank.”

With house prices currently more expensive relative to earnings today than in the last 120 years, the rising cost of third level education in many countries, and the trend toward a “low-return world”, swiftly followed by the global Covid-19 pandemic, a cost-of-living crisis, and rising global debt, Bitcoin’s primary user base, aged 18-45, lie squarely in the generation who feel like they can’t catch a financial break, as they tread water in a financial system with no room left for them.  With this in mind it is probably not surprising that we saw a sharp rise in interest in the cryptocurrency token over the 15 years since its creation.

But success is not just limited to idealistic tech savvy Millennials and Gen Zedders. There is a growing acceptance of Bitcoin across the wider financial system as a bone fide alternative asset class, culminating with the introduction of several SEC approved Bitcoin Exchange-traded Funds (ETFs) in January 2024, paving the way for institutional investors as well as the public at large to invest at scale.

How has the commercial use of cryptocurrency evolved? 

The growth of BTC on a global scale over 15 years could be considered exponential, compared to the centuries-long evolution of other forms of money.

Originally entirely virtual, the introduction of physical Bitcoin debit cards from 2014 revolutionised its commercial use, allowing people to pay directly with their BTC and withdraw ‘fiat’ money in the ‘real’ world.

Concurrently also from 2014 well-known global businesses – spearheaded by Microsoft, and followed by such brands as Starbucks and Tesla, – started to accept payment by cryptocurrency, signalling a shift for BTC from the fringe to forefront of mainstream commerce and financial transactions. Today if you have Bitcoin, or other cryptocurrencies, in your pocket to burn, you can buy everything from your next iPhone to your next beachside villa. The real world use cases for cryptocurrencies are diverse and rapidly expanding.

Cryptocurrency adoption has expanded at a high rate in developing countries where it provides a solution for under-or-unbanked areas of the world. In 2021 El Salvador became the first country in the world to adopt Bitcoin as legal tender, and in 2022 the Central African Republic opted to do the same. This, together with similar decisions made across several other developing nations, served as a marker that the original intention of crypto as an accessible and inclusive way of transacting were still at the heart of the digital asset.

Are traditional service providers progressing to accept cryptocurrency?

Some service providers are progressing to accept payments by cryptocurrency, but we are in the very early stages, and adoption may not be appropriate for all providers. At this stage of development, we see needs must adoption, where there is a valid reason to do so.

At Saffery Trust in Switzerland, we got ready to accept cryptocurrency payments in 2022, to meet the evolving needs and expectations of our clients, several of whom own and transact in crypto assets. As a cross-generational service provider, it is important for us to keep abreast of trends and advancements in technologies that can benefit our clients now and, in the future, and accepting cryptocurrency payments is a prime example of this commitment.

What are the biggest challenges facing crypto owners for commercial transactions?

On-and-Off-ramping: The process of converting between cryptocurrency and traditional currencies – known as on- and off-ramping – can still be somewhat clunky and cumbersome, although this is changing as developers and companies work to make is easier and more accessible. For example mainstream digital banks such as Revolut and Swissquote lean easily into digital currencies and are investing heavily in infrastructure to do so.

Regulation: The current inconsistencies in regulation across jurisdictions poses a challenge for investors, who need to undertake their own due diligence on intermediaries including custodians, and, as several high profile collapses of crypto custodians have shown, getting it wrong can have significant consequences. As regulations are introduced globally, investors must keep abreast of changes to ensure compliance and avoid legal penalties. Our clients look to us to take on this responsibility and ensure their crypto wealth is appropriately structured.

Volatility: As a new asset class, the crypto market is notoriously volatile; what your BTC could buy you yesterday is not necessarily what it could buy you today. In March 2020, the value of BTC dropped 39% in a single day, highlighting its instability. Just four short years later, in March 2024, we saw an all-time high value exceeding $73,000. Since the introduction of ETFs and wider adoption, pricing volatility has calmed, and as adoption grows, further stabilisation will likely follow.

What do you expect to see happen with the commercial use of cryptocurrency?

Integration: Cryptocurrency will continue become easier to use commercially from both a user experience perspective with more intuitive applications becoming available, as well as a security perspective as regulation continues to develop on a global level. This increased peace of mind for users of cryptocurrency should result in more mainstream use of cryptocurrency on a daily basis, and access to stable an trustworthy custodians.

‘Bitcoinisation’: Developers will find more ways to develop on Bitcoins blockchain, such as Runes protocol which allows smart contracts to be built on it, and opens the door to using Bitcoin for the tokenisation of assets. These developments will give BTC more commercial utility than as simply a ‘store of value’, whilst still retaining the unique characteristics which make it the most secure, decentralised cryptocurrency.

CBDBs and Tokenisation of Assets – The introduction of Central Bank Digital Currency (CBDC) – digital money issued by a country’s central bank will bring digital money to our daily lives, and  tokenised assets available at a wide scale will allow people to invest in assets on a fractional basis.

As Bitcoin continues to evolve, its journey from a niche concept to a mainstream financial tool underscores its potential – and that of other cryptocurrencies – to reshape the future of global finance. Through inevitable rises and falls, it will certainly be an interesting story to follow.