What’s holding back Bitcoin adoption?

Another title may be, “2 things I think hold back Bitcoin adoption.”


Using Bitcoin as a store of value seems like an obviously good idea to me. But clearly, the market doesn’t feel the same way as of 2023 AD. The predominant form of money evolved considerably over the millennia. Humans moved from metal coins to bills of exchange, to adopting banking systems. The driving force behind the adoption of each was, of course, market forces that determined what the “best” money was.

Key emergent properties characterized each era. For example, the era of physical coin dominance created incentives to violently seize coins, or debase them if you had the authority to create them. And the era of banking created incentives to become the banker and/or issuer of each currency through some form of domination; economic, political, militaristic, etc.

Humanity migrated from one store to another not through ideology, but rather through the mundane forces of greed, convenience and general utility. And the dominant party over money reaped rewards, much like the lords of each house in the feudal era. Today for example, JP Morgan Bank through its financial domination reaps billions of dollars a year risk-free for providing custodial banking services to USA citizens. Through its status as a “too big to fail bank”, it can get away with paying a near 0% interest rate on deposits, while investing those deposits in government treasuries yielding 3-5%. Another example is the USA government through militaristic domination forcing Middle Eastern countries to price oil in USD (“petrodollar”), while having the power to print more USD.

The major points to draw from this very brief historical excursion is that the dominant form of money changes over time, and the reigning entities over that money generally benefits significantly to the point where they will invest significant resources in maintaining dominance.

It smells like fraud

A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Ironically, a fractional reserve banking system depends on depositors not redeeming all at the same time; it has the exact same vulnerability as a vanilla Ponzi. Greater Fool Theory states that there will always be a “greater fool” in the market who will be ready to pay a price based on higher valuation for an already overvalued asset.

Whether we care to admit it or not, Bitcoin feels this way to some. It is an allocation on a digital ledger, and the value is simply what others are willing to pay for it. Bitcoin absolutely has a growing auxiliary value as a decentralized digital notary, and this will only grow over time as block space becomes increasingly scarce; today it is not.

However, despite these feelings of Bitcoin being another instance of “greater fool theory” it has serious value anchors. However, these value anchors don’t make sense to most of the population today. In an age where most of the value creation increasingly lies in the digital realm, the ability to verify message authenticity and integrity grows in proportion. Deepfakes, impersonation, social engineering are all in their nascent phases right now. Most people underestimate the chaos that will arise from these tools. All centralized services including DNS, encrypted messaging services, and more can be fooled with sophisticated-enough social engineering or inside-heists. Most “encryption” on enterprise/military/banking infrastructure is meaningless because of agent-based key management. To elaborate, perhaps your bank account can only be accessed through some cryptographic verification inside Chase, but a normal employee has access to it. Meaning if you fool the employee, the encryption doesn’t even matter.  By extension, this includes banking, insurance and military organizations. Impossible to override or social engineer is the proof-of-work blockchain produced by Bitcoin miners. More simply put, the asset owner is the key owner.

Wallets are confusing

Suppose you really buy into Bitcoin, as a large corporation or bank. Where do you hold your Bitcoins? For large amounts in excess of ~250 Bitcoins ($10M USD or so today), it absolutely makes sense to not rely on a third party since transactions are not reversible and it is possible to anonymize funds post-theft. The great news is, Bitcoin is designed for this. Hierarchical Deterministic (HD) and Multisignature (Multisig) wallets theoretically provide an ideal treasury solution for organizations. HD wallets enable you to designate top-level keys that control an entire organization and subkeys that only can spend and administer subordinated keys. Multisig enables one to designate multiple required signatories for a level of funds. Yes – traditional banks have analogous functionality, but Bitcoin’s HD and multisig system enable a near infinite-level of granularity on access control with no requirement of bank white-listing.

The confusion however, comes in the actual implementation of these simple primitives. There’s a seed from which the master private key for each wallet is derived. This seed may be recovered by a set of a dozen plus words. Sounds good so far – however, suppose a seed phrase is compromised. We must then perform a key rotation to cycle it out. Specifically, suppose keys A, B and C form a 2 of 3 multisig wallet. If key C is compromised, keys A and B must sweep all UTXOs into a new 2 of 3 comprised of A, B and D. In theory, a key rotation isn’t very hard but it does require coordination among all keyholders.

Moreover, suppose a private key is lost and must be recovered using its seed phrase. In order to access coins secured by the recovered key, one must know the derivation path. A derivation path is essentially a way to go from a master private key to the first address that holds coins in a wallet. Most of the time the derivation path is totally an implementation-level detail of a wallet. The end-user literally does not need to care about it and never really prompted to record it. The only case where it matters is that of wallet recovery.

I’m simplifying some of these concepts, but the general idea is that in certain failure scenarios a level of technical competence is required.

I would broadly categorize Bitcoin wallet UX failures under three key scenarios.

  1. HD wallets today don’t attempt hierarchical access control, which is a missed opportunity
  2. Key rotation in multisig is non-trivial, especially if hierarchical wallets are used for granular access control
  3. A recovery phrase is not the only data needed to recover a multisig wallet

If I had to describe the “dream” Bitcoin wallet, it would involve storing all the metadata possible in a redundant cloud while keeping key management totally offline. Moreover, a great Bitcoin wallet would utilize HD wallet and multisig capabilities to allow for tiered and granular permissions. All while having seamless “lost key” recovery. I haven’t seen this hybrid approach yet for a sophisticated wallet. Current solutions require users to put in too much effort into understanding how Bitcoin storage actually works. Whether we care to admit it or not, this technical prerequisite scares off many sensible people.

Personally I think the reason why Bitcoin wallets have relatively bad UX (sorry if you’ve built one) is that the people who get why Bitcoin is so powerful are usually technical enough to work through all the annoyances of self-custody. Tesla (TSLA) and Block (SQ) are two massive organizations that hold lots of Bitcoin, both with CEOs that deeply understand the technology behind it and can therefore schlep through a custodial solution that works for a large number of coins.

Not all is lost though. A series of open protocols make it easier than ever to build wallets for a host of hardware devices. Wallets Recovery aims to document the quirks of each wallet. It isn’t perfect, but it is a great start. The fact that there’s no paid organization or owner of Bitcoin dictating this convergence is an extremely optimistic indicator.


Lots of Bitcoin literature exists on why Bitcoin “is the best”. It is also valuable to ponder why very smart people are still skeptical of Bitcoin.

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