[This is an adaptation of an article I wrote last year for CoinDesk]Satoshi Nakamoto's electronic cash system – Bitcoin – was originally intended for people to make online payments. But it never caught on as a mainstream payments option. Bitcoin's wild, and potentially lucrative, price changes have prevented it from developing into a popular substitute for Zelle, Visa, ACH, or PayPal. On top of that, the process used to run the bitcoin network, proof-of-work, is incredibly costly (by design).What would cause bitcoin payments to go mainstream in America? That is, if ten years from now everyone was using volatile bitcoin tokens as their main medium of exchange, what major events would have gotten us to that point?Unfortunately, the path to mainstream bitcoin payments is not an uplifting
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[This is an adaptation of an article I wrote last year for CoinDesk]
Satoshi Nakamoto's electronic cash system – Bitcoin – was originally intended for people to make online payments. But it never caught on as a mainstream payments option. Bitcoin's wild, and potentially lucrative, price changes have prevented it from developing into a popular substitute for Zelle, Visa, ACH, or PayPal. On top of that, the process used to run the bitcoin network, proof-of-work, is incredibly costly (by design).
What would cause bitcoin payments to go mainstream in America? That is, if ten years from now everyone was using volatile bitcoin tokens as their main medium of exchange, what major events would have gotten us to that point?
Unfortunately, the path to mainstream bitcoin payments is not an uplifting one. It requires that the U.S.'s reliable payments pipelines, the ones that have knitted Americans together for decades, stop doing their job. This unraveling of the payments system would be just one part of a broader decaying of American society. Only when these core payments systems are inoperational, and American society is on its knees, will a third-best payments rails like bitcoin be called into play.
Here's a short story about how America's payments infrastructure slowly implodes and bitcoin payments go mainstream.
We all know that America is ideologically divided. This political storm has been spreading into commercial affairs with companies being required to take a stand on many polarizing issues. The payments industry in particular has become a major venue for conflict. (Think controversies over fundraising for Kyle Rittenhouse and card network censorship of sex workers.)
Imagine a world in which these divisions were to deepen.
In 2023, activists successfully pressure payment processors to make broad-based purges of businesses that are deemed too Republican. One casualty, the Wall Street Journal, is de-platformed by its acquiring bank. (An acquiring bank is the financial institution that hooks businesses into the Visa and Mastercard networks.) The Journal quickly gets a new Republican-friendly acquirer. Companies with Trump-supporting executives like Home Depot and Goya Foods are cut off by their acquiring banks, too.
Republican activists react by pressuring financial institutions to unplug Democrat-aligned businesses. In 2024, several large banks stop connecting abortion clinics to the Visa and MasterCard networks.
By the late 2020s a divided ecosystem of payments processors and acquirers has emerged. One half specializes in connecting businesses and nonprofits deemed Republican to the card networks. The other half specializes in connecting Democrat ones. Any bank or processor that tries to stay neutral is shunned – she who connects my enemy to Visa is my enemy.
Even at this level of divisiveness, Republicans and Democrats can still make payments with each other. That's because MasterCard and Visa remain neutral. The two networks allow both Republican- and Democrat-aligned acquiring banks, and the businesses that these banks serve, to connect to their networks. And thus dollars can flow across the ideological chasm.
But in 2029, Democrat activists succeed in pressuring Visa to end their neutrality and disconnect all Republican acquiring banks and processors. Suddenly, businesses that are deemed Republican can no longer accept Visa cards. The next year MasterCard is pressured to go Republican. All Democrat-leaning businesses are exiled from the MasterCard network.
America is now divided into two card fiefdoms. Apple (D) is Visa, Walmart (R) is MasterCard. Amazon (D) is Visa, Home Depot (R) is MasterCard.
But commerce can still occur across the divide. Any consumer who wants to shop at both Republican and Democrat stores need only make sure they have both a Visa and a MasterCard.
Getting both brands might not always be possible, however. Republican individuals may find it difficult to pass the increasingly politicized application process for a Visa card. Likewise, Democrat consumers find it challenging to make it through the application process for a MasterCard.
That's when bitcoin might become a more useful payments mechanism. Since the Bitcoin network is censorship resistant – anyone who want to use it can easily get access – it provides a means for Republicans to shop at Democrat stores and vice versa.
And so bitcoin finally becomes more popular for payments, but only because American society has moved backwards to a less civilized state. The easiest and most efficient option, cards, have degraded to the point that a back-up technology, Bitcoin, must be relied on. You can see that bitcoin isn't a progressive technology, it is a retrogressive one.
Up till this point in my story, the broad ideological upheaval between left and right has been reflected in a splitting-up of the card networks. Notice that the underlying payments plumbing on which America's entire private payments system runs, the Federal Reserve, has remained neutral throughout.
In 2031, that changes. The neutrality of the Federal Reserve, made up of 12 district Reserve banks, comes to an end. The CEO and directors of the Federal Reserve Bank of Kansas City, all staunch Republicans, decide to stop providing Democrat-leaning banks in their district with access to Fedwire. (The Kansas City district includes the states of Kansas, Wyoming, Nebraska, Colorado and Oklahoma.)
Fedwire, the Federal Reserve's real-time settlement system, is America's core payments utility. When anyone makes a payment from his or her bank to another bank, it'll eventually be settled by a movement of funds along Fedwire. By cutting off Democrat-leaning banks and their customers from this key utility, the Kansas City Fed effectively severs them from the U.S. payments system.
In retaliation, the Federal Reserve Banks of San Francisco and Boston disconnect Republican banks from Fedwire, in one swoop unbanking all Republican-leaning businesses located in their districts. The remaining ten district Reserve banks all pick sides, too.
If they haven't already done so, Republican leaning businesses rush to relocate to Republican districts. Otherwise they will not get banking services. Democrat businesses migrate to Democrat districts.
Those businesses brave enough to stick it out in a hostile district will need an alternative payments mechanism for connecting with their suppliers and customers. Cash will be one option. For non-face-to-face payments, however, bitcoin may be their only option. And so as America descends into partisanship and the Federal Reserve crumbles, an awkward bitcoin "cash system" becomes a way around an increasingly balkanized payments system.
Even in this hyper-factionalized America, inter-district trade between Democrat and Republican zones can still occur. A car mechanic in a Democrat district can buy tires from a part dealer in a Republican state. That's because Democrat-leaning Federal Reserve banks (such as the San Francisco Fed) remain connected to Republican-leaning Federal Reserve banks (such as the Kansas City Fed) through Fedwire. Fedwire continues to unite disparate parts of the country.
That stops in 2033. The San Francisco Fed halts all incoming payments from Republican Reserve banks including the Kansas City Fed, Atlanta Fed, and Dallas Fed. In reaction, Reserve banks in Republican enclaves such as Kansas City cut off Democrat districts. At that point there ceases to be a universal U.S. dollar. Money held in accounts in Georgia and Florida and Oklahoma can't move into accounts in California or Washington, and vice versa. The payment tissue that once connected all Americans has torn.
With the collapse of Fedwire, cross-border trade and remittances between hostile Democrat and Republican enclaves get very tricky to carry out. Society may have regressed far enough back that silver and gold once again become an international settlement medium, just like in the 1600s and 1700s. Or perhaps bitcoin would become America's preferred medium for making payments across enclaves. Unlike gold, bitcoin can be transferred remotely.
The collapse of America's payment infrastructure would be just one theatre in a much larger cleaving of American society along ideological lines. Other key bits of American infrastructure would also begin to fall apart: the courts, law enforcement, the education system. There would be large physical dislocations as Republican families flee Republican enclaves and Democrats to Democrat enclaves.
But if America's electrical and telecommunications infrastructure has crumbled, too, would it even be possible for people to use bitcoin, which is reliant on the internet?
It’s a stretch, but we can imagine distributed solar power solving the electricity problem. As for accessing the bitcoin network, tinkerers could try to connect old-fashioned ham radios to Blockstream's bitcoin satellite. If the remnants of AT&T and Verizon can only provide patchy internet service, so-called decentralized mesh networks might offer an alternative way to access the web.
This dystopian future probably isn’t going to happen. It's just a story. For now, bitcoin remains an unpopular payments system. Let’s all hope that it stays unpopular. No one wants to live in a country that has declined so far that bitcoin has become a vital way to make payments.