Volume III · Bitcoin · Money Research

11 — The Defects That Have Stopped Bitcoin From Becoming a Global Currency

Sorting the defects

Bitcoin's critics and defenders make claims about different uses. The useful exercise is to separate protocol constraints from outcomes that can change with software, markets, credit arrangements or law. The ten issues below are analytical categories, not a ranked list of permanent impossibilities. For each, the relevant question is what arrangement would mitigate it and what new risks that arrangement introduces.

1. Legal and regulatory perimeter — being fixed

Legal treatment depends on asset, activity and jurisdiction. MiCA has governed specified EU crypto-asset activities since 2024–25; the U.S. GENIUS Act was enacted in July 2025 to regulate a defined class of payment stablecoins and permitted issuers, with implementation tied to section 20's effective-date rule. It did not license every dollar stablecoin on signing. U.S. market-structure legislation, bank custody permissions, tax treatment and Basel exposure classification answer different questions. Their current legal status and local application need their own dated sources before treating the regulatory perimeter as complete or as proof of a single economic outcome. Enacted GENIUS Act, §§2–4, 20.

2. Tax and accounting — partly fixed

FASB ASU 2023-08 requires fair-value measurement for qualifying crypto assets in reporting periods beginning after 15 December 2024; it did not first make corporate Bitcoin holding possible. U.S. property-tax classification and India's tax rules must be checked against current original revenue law for each transaction, rather than describing every Bitcoin purchase as one universal capital-gains event or treating tax design as a proved motive. Fiat-denominated taxes do not settle private contract denomination. The earlier de-minimis bill status remains current-law open. FASB ASU 2023-08, scope and effective date; IRS Notice 2014-21, Q&A 1–3.

3. Scalability — mitigated, not solved

Bitcoin's base layer has a four-million-weight-unit block limit; the number of transfers per block depends on their sizes and witness data. A commonly quoted three-to-seven-transactions-per-second estimate is a rough throughput illustration, not a measured, fixed limit. Visa's card-authorization rate and nominal processing capacity measure different tasks and cannot be compared directly with Bitcoin confirmation or final interbank settlement. Fees and delay vary with congestion. Lightning moves individual payments through off-chain channels, but a usable route needs outbound liquidity from the sender and inbound liquidity at the recipient; public channel capacity does not measure completed payments, private channels or payment success. A custodial Lightning transfer adds an intermediary, while a self-custodied route does not eliminate liquidity or operational requirements. To judge scaling, compare a defined payment journey: payer authorization, network transfer, recipient usable funds, total fees and conversion spreads, availability, failure rate and recourse for the same corridor and period. BIP-141, block-weight rule; Lightning Labs, channel-liquidity guide; Visa Developer, payment stages.

4. Custody, irreversibility and physical risk — structural, with mitigations

Bitcoin transfers have no built-in card-style chargeback or central key reset; key loss, theft, custody failure and physical coercion are separate risks. Dormant outputs cannot establish a permanently lost amount. The earlier FBI fraud total, age breakdown, “72 verified attacks,” French incident rate and worldwide theft value need original report sections and an incident inventory before being presented as Bitcoin-specific or verified totals. Multi-signature and hardware devices mitigate some key risks; regulated custody transfers a different power to an intermediary. Bitcoin Core, `gettxoutsetinfo` scope; iShares Bitcoin Trust ETF, June 2026 Form 10-Q, custody structure.

5. Concentration — structural and worsening

“Supply and Control” separates validity rules from mining, custody, trading and development. Pool-produced block shares, template attribution, hardware manufacture, maintainer access, grant funding, trust custody and beneficial ownership each have a different denominator and observation window. Their earlier percentages, including an asserted “top 2% of entities” wealth share, are not a verified common concentration series. No dated evidence here establishes that every non-rule dimension declined each year since 2020 or that ETFs caused every change. The risk to test is whether one actor can deny inclusion, freeze a custodial withdrawal, influence development or move market liquidity under a specified scenario.

6. Energy and the security budget — structural and worsening

Bitcoin miners receive the block subsidy plus transaction fees. The programmed halving cuts the subsidy in BTC per block, not the total reward, its dollar value, network hashrate, or the cost of an attack by exactly half. Fee demand, bitcoin's dollar price, mining costs and difficulty can all change. Bitcoin's difficulty adjusts every 2,016 blocks, so a hashrate shock can temporarily change block timing before retargeting. The long-run question is whether fee revenue, price and miner participation together sustain enough work to deter attacks as subsidy declines; a tail subsidy would require a contested change to issuance rules, not follow automatically from a fee shortfall. Eric Budish's 2018 model compares miners' recurring rewards with a prospective attacker's one-off gain under specified assumptions. It is a conditional economic argument, not a measured current attack threshold or proof that a particular halving makes the chain insecure. Bitcoin Developer Guide, “Block Chain”; Budish, NBER Working Paper 24717, abstract and §§2–3.

7. Governance and technical risk — structural

The 21 million ceiling depends on correctly implemented and broadly adopted consensus software. Bitcoin's 2010 overflow incident and 2018 inflation bug show that implementation and review matter. Quantum computing poses a different, prospective risk to existing signature schemes, but no established date for a machine capable of attacking Bitcoin follows from today's estimates. NIST's 2024 post-quantum standards and its transition guidance concern cryptographic standards and federal systems; they do not impose a Bitcoin consensus deadline. BIP-360 is a draft soft-fork specification for a script-tree output without Taproot's key-path spend. It targets long exposure of an output's public key, not every short-exposure attack or already exposed legacy output. BIP-361 is a draft informational migration proposal, conditional on a future post-quantum signature design and activation. Its proposed three- and five-year phases are relative to hypothetical activation, not calendar deadlines already accepted by Bitcoin nodes. It contemplates additional conditions for legacy spends and potential rescue protocols; saying it has already decided to freeze or confiscate a third of all coins overstates both its status and its unresolved design. BIP-360, status, abstract and threat model; BIP-361, status and specification; NIST post-quantum cryptography project.

8. Unit-of-account failure — structural

The evidence reviewed here does not show broad native Bitcoin denomination of wages, rents, debts, invoices or taxes in a large economy. El Salvador kept the dollar as its general pricing and accounting unit during its legal-tender experiment. Some Bitcoin payments may be priced in a fiat currency and converted at settlement; others may be contracted in Bitcoin, so “every payment” is too broad. To measure unit-of-account use, record the unit named in the original contract, not only the rail used to pay it. Volatility and tax treatment are plausible barriers whose effect must be tested by country and use; they do not prove permanent inability.

9. Volatility — structural

Bitcoin's fixed base-asset supply means issuance cannot respond to a demand shock in the way a commodity's new production can. It does not mathematically fix the future level of price volatility: market depth, credit arrangements, demand and the chosen measurement window matter too. The earlier annual volatility ranges, drawdown list and Bitcoin–gold ratio are withheld until one matched price dataset and calculation are recorded. A dated loss example is the Grayscale Bitcoin Mini Trust ETF's principal-market valuation, from $87,549.41 per bitcoin at 31 December 2025 to $58,745.18 at 30 June 2026, both at 4 p.m. New York time. This is an asset price, not an after-fee ETF investor return. Grayscale Bitcoin Mini Trust ETF, June 2026 Form 10-Q, note 3. Gold was also highly volatile in early 2026: the World Gold Council reports more than 50% realised volatility at one point in a 30-day daily-return measure. WGC, *Gold Mid-Year Outlook 2026*, chart 2. Whether either asset meets a monetary user's stability needs depends on the liability and horizon being tested.

10. The macro objections — structural

No elasticity in Bitcoin's base-asset supply, no Bitcoin-issuing lender of last resort and no state seigniorage: “If Bitcoin Were the Unit of the Economy” sets out why these are objections to a Bitcoin-denominated system. The IMF's “cryptoization” analysis discusses possible currency-substitution and capital-flow risks, not an inevitable outcome in every emerging market. The Minneapolis Fed's fiscal model examines assumptions under which a government might tax or restrict a fixed-supply asset; a model result is not a universal policy prescription. Bitcoin is commonly priced against dollars, while dollar stablecoins and intermediaries provide important trading liquidity. That dependence can amplify stress when dollar liquidity tightens, but the assertion that Bitcoin is sold in the first hours of every crisis requires an event study with defined shocks and price windows. An IMF staff working paper found increased Bitcoin–equity co-movement after 2020 and sensitivity of a broader crypto factor to modeled U.S. monetary tightening in its 2018–23 sample; that supports a risk to test, not a timeless rule. IMF Working Paper 23/163, introduction and conclusion.

The pattern

Legal, tax, accounting, custody and scaling choices can change how Bitcoin is used. Some solutions introduce an intermediary; others preserve self-custody at different costs. The fixed issuance schedule is a design constraint, while observed volatility, miner revenue, concentration, governance outcomes and dollar-market dependence are empirical conditions that can change. Each creates a question for a Bitcoin-denominated economy rather than a proof that one specific future arrangement is impossible. The current evidence supports an important investment and settlement role alongside dollar-based infrastructure, not broad use as the everyday unit of account.

Key takeaways

Bitcoin's supply schedule and lack of a central issuer address some trust problems, but they do not by themselves deliver stable purchasing power, consumer recourse or crisis liquidity. Volatility, fee-funded security, custody concentration, governance and dependence on dollar-priced markets deserve separate dated tests; their future paths should not be labeled permanently impossible or already solved. Evidence of sustained native bitcoin wages, prices, debts and payments, together with workable credit and settlement arrangements, would change the present conclusion that its use as a broad unit of account remains limited.