Written by Jaran Mellerud

This article explores how geopolitical shifts and the trustless nature of Bitcoin could drive its use in global commerce, resulting in significant implications for transaction fees and the broader Bitcoin network. Let's explore how this could unfold.

In the last article, I explained how Bitcoin will see a considerable increase in transaction fees over the next few years, driven not by monetary transactions but by more speculative, non-monetary use cases. These non-monetary transactions will eventually be priced out as demand for monetary transactions increases.

How could this unfold? How will Bitcoin evolve from its current status as primarily a store of value into also becoming a medium of exchange? Let’s do some brainstorming.

At present, it's undeniable that the USD serves as a far superior unit of account and medium of exchange compared to Bitcoin. The USD benefits from a vast network effect and significant price stability, making it highly effective for use as a medium of exchange.
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The competition Bitcoin faces as a medium of exchange is further intensified by USD-pegged stablecoins, like USDT, which address some of the USD’s weaknesses, such as slow transaction speeds, stringent KYC requirements, and high cross-border fees. Perhaps if stablecoins didn’t exist, Bitcoin usage and transaction fees would already be massive.

Furthermore, Gresham’s Law states that people will always use "bad" money while hoarding "good" money. This explains why few bitcoin holders prefer to pay for goods and services using their bitcoin stack, opting instead to part with their fiat currency.

My point is that the stickiness of the USD and other fiat currencies will persist for a long time. These currencies, or stablecoins pegged to them, will remain the preferred medium of exchange and unit of account for the foreseeable future, at least for most transaction types.

Still, although most transactions will still be done using fiat currencies or stablecoins over at least the next decade, one enormously important transaction type will, in fact, move over to Bitcoin within the next five to ten years.
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Bitcoin was initially embraced as a store of value by grassroots users, with major powers only now beginning to follow suit. Conversely, the medium of exchange function will likely see adoption starting with the world’s major powers, with grassroots users joining in later.

As a pure medium of exchange, bitcoin faces challenges competing with the dollar, other fiat currencies, and especially stablecoins. However, bitcoin has one distinct advantage: it is entirely trustless, making it highly suitable for settling large global trades between parties that don't trust each other.

In today’s deteriorating geopolitical situation, characterized by reduced trust between countries and major players, the trustless nature of Bitcoin means it could play a key role in maintaining global trade over the next decades.

Since the end of World War II, the USD has held its position as the undisputed global reserve currency and the preferred asset for settling international transactions. However, over the past decade, and especially following Russia's full-scale invasion of Ukraine in 2022, we have begun to witness the USD gradually losing its dominance as the uncontested international settlement asset.

China and Russia have already moved away from using the USD for bi-lateral trade and are instead using the RNB. The BRICS alliance is growing rapidly, with a common trait among these countries being the desire to decrease reliance on the US-led system.

This prompts the question of what could replace the USD as the global settlement currency and reserve asset. While China may advocate for the renminbi (RNB), its limited trustworthiness hinders widespread adoption. Even though BRICS countries are working more closely together, deep down, they trust each other even less than they trust the United States. As a result, any non-USD solution is unlikely to be viable in the long run. A new, neutral global currency will be needed for international trade and to serve as a reserve asset.

As the only remaining neutral global currency, Bitcoin will, in a few years, likely start being adopted by BRICS countries for international trade. Once that shift occurs, I expect that the US and the rest of the Western world will follow suit.

This trend is already underway. Both Russia and Iran have openly discussed the possibility of using Bitcoin to settle commodities trades with "unfriendly" trading partners. Given the current geopolitical shifts, it’s not far-fetched to imagine Bitcoin being used for a significant portion of global commodity trading within the next decade.
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Undoubtedly, the increased use of Bitcoin for multi-million dollar commodities trades would drive up transaction fees. These transactions are substantial enough to afford spending even thousands of dollars on fees.

How high could transaction fees get once bitcoin becomes increasingly used to settle international commodities transactions?

Each year, around $23.7 trillion worth of goods are exported from one country to another. If only 5% of that trade were conducted over the Bitcoin network, it would result in $1.2 trillion in annual Bitcoin transactions for settling these trades.

Further, assuming participants are willing to pay 0.5% of this value in transaction fees, this could translate to a willingness to pay $6 billion per year in fees. At the current bitcoin price of $56k, this equates to approximately 2 BTC in fees per block.
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Furthermore, it’s plausible that Bitcoin could eventually settle 10% or more of global trading volume. Assuming a willingness to pay 0.5% of this value in transaction fees, we could see fee pressure from global commodities trading reach up to 4 BTC per block. However, it’s important to remember that as the price of Bitcoin increases, larger trades can be settled with lower bitcoin-denominated fees, reducing the burden of high transaction costs in bitcoin terms.

Additionally, as we highlighted in the previous article, Bitcoin blocks are already full. This means that the increased willingness to pay for transaction fees from commodities trades could create a multiplier effect, driving up fee pressure across the board. As a result, all other transactions might also face higher fees, potentially leading to an increase of several BTC per block in transaction fees.

It’s not unrealistic to anticipate that such fees could materialize within the next 10 years, as bitcoin becomes increasingly used as a medium of exchange for settling commodity trades.
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As geopolitical shifts and increasing global distrust drive the adoption of Bitcoin for settling international commodity trades, we are likely to see a significant rise in transaction fees. The transition from Bitcoin's current role as primarily a store of value to becoming a medium of exchange for major global transactions will create substantial fee pressure on the network.

As global commodities trading increasingly utilizes Bitcoin, it’s plausible that transaction fees could rise to levels of several BTC per block, especially given the current trend of full blocks. This potential increase in fees underscores Bitcoin’s growing significance in international trade, while also presenting both opportunities and challenges for miners and users alike.

The coming decade will be crucial for Bitcoin as it transitions from a store of value to a widely adopted medium of exchange.

To conclude, I'll leave you with a quote from Satoshi Nakamoto: “I’m sure that in 20 years there will either be very large transaction volume or no volume.”

I’ll bet on the very large transaction volume. Betting against Satoshi Nakamoto has never proven to be a wise strategy.

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