Bitcoin Not For The Poor — But Ether & Bitcoin Cash Are!

The conversation around Bitcoin’s (BTC) incrementally exorbitant transaction fees has been heating up and some (then) BTC miners showed their dissatisfaction, stemming from various other reasons, by way of a new Bitcoin fork — Bitcoin Cash (BCH).

I will limit my definition of cryptocurrency to these three functions of money: medium of exchange, store of value & unit of account. However I will be putting emphasis on the first function — the medium of exchange function. This will aid my argument throughout this article.

This is very simplistic but gets across the point quite concisely. Simplistic in the sense I could have used more math, like standard deviation of prices to illustrate volatility to average prices etc… and some economic modelling using CPI to, conservatively, estimate the affordability of Bitcoin in terms of one’s disposal income.

Demand For Bitcoin In South Africa
There are two main reasons why we want to buy Bitcoin, in other words; there are two main reasons why we demand Bitcoin. This is the liquidity preference for Bitcoin (as money):

1.) Transactions motive — people want to be liquid or have immediately available means of payment to undertake daily transactions and spending. (e.g buy airtime, groceries etc.)

2.) Speculative motive — some prefer being liquid for the purposes of trading the markets and making profit whether for the short or long term. It takes people who have specialized skills to part-take in this field so you will seldom find people with these kind of skills in the poor regions of the emerging economies. This motive is influenced by the store of value function.

There is actually a third motive, precautionary, which is simply glorified saving for unexpected events that would require one to part with their money; whether due to economic uncertainty or just life’s anomalies.
Clearly the most relevant underpinning impetus or premise of my article is that of the Transaction Motive which stems from Bitcoin’s characteristic as a medium of change.

Bitcoin vs. Bitcoin Cash (Avg. Tx Fees)

In emerging economies like South Africa, which will be the focus of this article, there is a dire need for accessible and low-fee banking because not everyone can afford to maintain a bank account. I initially thought Bitcoin would be the knight-in-shining-amour to help the less-fortunate realize a world of cheap and easily accessible financial transacting.

This chart compares Bitcoin & Bitcoin Cash average transaction fees.

As we can see from the above chart the average Bitcoin transaction fee is around $6.70 (R97.47) whereas Bitcoin Cash is around 11 dollar cents (R1.60). Bitcoin can cost even more, currently according to bitinfocharts the average of Bitcoin transaction fees tend to $20 — some report paying even much more of course. I have paid more myself.

From the bitinfocharts’ graph above (click “according to bitinfocharts”) you can extrapolate that the average cost of transacting in the Ethereum block chain using Ether (ETH) is only $0.219 (R3,15) which is way lower than what you are expected to pay in Bitcoin tx fees on any given day. Now, I could go on and on about the impressive long-term prospects of Ether ( & Ethereum) but this is not the place. But you can find out more about Ethereum Project here and put 2 and 2 together.

There are technical reasons behind these numbers and mainly are “block sizes” . I won’t get into detail as far as that is concerned, it is an entire article of its own.

More Than 50% Of South Africans Are Poor

According to Stats SA, in 2015 there was a headcount 55.5% of South Africans living below the upper-bound poverty line (UBPL) of R992 ($68,19).

I don’t even need to bore you any further with numbers because it is obvious that after settling all your living expenses you will be left with quite a little and definitely won’t afford relying on Bitcoin for daily liquid transactions in the event of Bitcoin becoming widely accepted by merchants. This is because as the network receives more and more entrants (as it becomes congested) the fees will go up along with confirmation times.

With Bitcoin’s unpredictable transaction fees & confirmation times it would be pretty irresponsible for any person (income ≤ UBPL) who cannot afford to pay any of these fees to use it as their day-to-day means of payment for goods and services. And the merchants would be just as equally naive to accept it.

Not knowing how much you will end up paying for sending your loved ones and friends some Bitcoin is painfully uneconomical and does not make good financial sense.

And…

I, personally, have a Bitcoin position but I have taken a more investor’s approach and I would be happy to one day use ETH or BCH, both of which I have positions, for daily transactions rather than BTC. Also, you will be happy to know that the best Bitcoin exchange, Luno, in the country has recently listed ETH!

Oh, and if you would like to buy Bitcoin and/or Ether directly with your local currency, you can do that with Luno (https://luno.com/invite/RH2TA).

Twitter: @WolfOfLuno