Can Bitcoin become a dominant currency?
Can Bitcoin become a dominant currency?
Bitcoin turns 10 by the end of the month. And during the last decade, there has been no lack of headlines about the inevitable increase (or inevitable fall) of this and other cryptocurrencies.
Along with all the talk there was a meteoric rise in the price of bitcoin, which ended late last year. The price of Bitcoin soared to almost 1,332% in 2017, reaching a maximum of $ 19,783.21 on December 17. Since then, however, the price of bitcoin has plummeted more than 66% to around $ 6,436, until October 19.
Price spins have occurred as the cryptocurrency is under increased scrutiny.
In August, the Securities and Exchange Commission rejected Nine proposals for funds quoted in bitcoin.. Prior to that, the SEC rejected, for the second time, a bitcoin ETF proposed by entrepreneurs Cameron and Tyler Winklevoss. Obtaining approval for a bitcoin ETF could go a long way towards helping the cryptography market attract retail investors, but the SEC concluded there is not enough transparency in the cryptocurrency markets to make sure prices are not being manipulated. The Wall Street Journal recently reported how the bots are manipulating The price of bitcoin in cryptographic exchanges.
A report of the New York attorney general's office In September they shared some of the concerns of the SEC.
Meanwhile, Fidelity Investments announced last week that will store and market digital currencies, including bitcoin, for hedge funds and other professional investors
And bitcoin is a hit in Markets in development and border.- Where the cryptocurrency is often seen as a refuge from political and economic turmoil and a way to navigate financial obstacles, including the lack of conventional banking services.
In the midst of all this, the debate over the long term outlook for Bitcoin as a viable and dominant currency continues.
YES: there is a need for alternatives to today's currencies
By Lisa Ellis
Bitcoin, which is approaching its tenth birthday on October 31, will have a hard 2018. By the end of October, the price of the cryptocurrency has fallen by around 54% so far this year, and has not exceeded $ 10,000. since the beginning of March. And it has suffered a series of rejections and delays by the Securities and Exchange Commission in an attempt to launch bitcoin ETFs.
The setbacks of 2018 are, in my opinion, the normal growing pains of a developing technology, and bitcoin will prevail. The cryptocurrency has a long-term role in society as an alternative and universal currency, which functions as a means of payment and as a store of value, in economies where the fiduciary currency is unstable or subject to manipulation.
In an original WSJ documentary, market reporter Steven Russolillo ventures to Japan and Hong Kong to explore the universe of cryptocurrencies. Its mission: to create WSJCoin, a virtual token for the newspaper industry. From file: Crystal Tai. Video: Clément Bürge
First, there is a need and demand for an alternative to the fiat currency. Data on the global economic outlook of the International Monetary Fund. show that 50% of the world population lives in one of the 98 countries that have had at least one year in the last 10, since Bitcoin has existed, when inflation was above 10%.
In countries with high inflation, or an otherwise unstable fiduciary currency, people can not trust that the government-backed fiat currency will maintain its value, and look for an alternative, like gold, traditionally. I think Bitcoin will fill this need in the future.
Consumer payment companies, such as Visa, Mastercard, PayPal and Alipay, are working to digitize cash to eliminate corruption and improve global financial inclusion. But even they depend on the stability of the underlying fiduciary currency. As bitcoin emerges as an alternative to unstable fiduciary currencies, I believe that you can make a transaction with a bitcoin credit card, just as it does today in dollars, euros, yen and other currencies.
Bitcoin allows secure transactions between two unknown parties, the bar required to function as a payment system. And bitcoin is decentralized and open source, which allows it to transform and adapt to the requirements of use in an organic way.
However, bearish opinions about bitcoin rarely discuss these design features. They usually focus on current limitations, arguing that Bitcoin will never achieve the required level of stability, transaction capacity, security, ubiquity of merchant acceptance, government blessings and confidence to function as an alternative currency and payment system. .
Slowly but surely, however, bitcoin is addressing these limitations. Some examples:
• Stability: The launch in December 2017 of bitcoin futures in Cboe and CME allows the short sale of bitcoin, which is essential to reduce long-term volatility.
• Capacity: A statistic cited by bitcoin: the bitcoin network only processes seven transactions per second, while the visa network, for example, about 65,000. Therefore, bitcoin can not be used to perform daily payment transactions, because the system can not handle the volume. This is true now, but keep an eye on the nascent, but promising, Lightning Network Initiative, currently in test mode. If successful, the processing capacity of bitcoin would increase to thousands of transactions per second, making the system much more viable for making payments.
• Security: Perhaps the biggest Achilles heel of bitcoin is security. It is not security of the network itself. Rather, securely store the cryptocurrency so that it can be easily accessed, while being safe from hackers. It is complicated, hence the recent high-profile cryptographic theft (for example, Coincheck, Coinrail).
However, progress is being made: dozens of offline hardware portfolios designed to allow people to securely (and anonymously) store the cryptocurrencies available on Amazon for less than $ 100. Earlier this year, Noble Bitcoin launched a fully insured cryptocurrency escrow service, using a Texas-based cold storage facility that already houses gold, silver and platinum.
• Acceptance of the merchant: Dozens of bitcoin merchant processing services, which allow merchants to take bitcoin, already exist (BitPay, BitPOS, Coinbase, etc.). Although today it is low, as consumer demand and comfort grow with the system, the acceptance of the merchant will follow naturally.
• Government blessing: Despite the theoretical threat posed to fiduciary currencies (such as limiting the ability of a government to enact monetary policy), few countries prohibit bitcoin. Many important countries, including the USA UU., Japan, Australia and many in Europe, are classifying how to properly classify them: a commodity versus a currency versus a security. I believe that this classification will establish the regulatory and legal frameworks for cryptocurrencies, which will then allow secondary services, such as insurance, that help generate trust in the consumer.
While the bitcoin price is having a hard 2018, quietly, in the background, the bitcoin system is constantly progressing to become a viable and universal alternative currency.
Ms. Ellis is a senior partner and capital analyst at MoffettNathanson LLC, which covers payments, processors and IT services. Send an email to reports@wsj.com.
NO: speculators can use them, but not the average consumer
By tim swanson
How can we measure the domination of cryptocurrencies? Many vocal enthusiasts point to its hypnotic price.
However, the total notional valuation of bitcoins and other cryptocurrencies is suspect since the value (measured in US dollars) is not related in any way, or is not attributable, to a value driven by profit.
In other words: the price is not related to its use.
While it is likely that they will continue to find their place in the portfolios of already rich speculators and investors, the current crop of cryptocurrencies such as Bitcoin is not designed to meet usability expectations for the average consumer. And that is on purpose.
Bitcoin was trying to solve a problem by allowing unidentified participants to send "electronic cash" to other unidentified participants in a payment network that did not offer insurance, customer service or means of redress. But the majority of consumers who could potentially obtain cryptocurrencies live in an environment where the identities of the participants are known and where a legal recourse is expected. Consequently, cryptocurrencies are not really solving an existential problem in their life.
A recent analysis of ChainThe aggregate payment activity of the 17 largest coin payment providers found that the bitcoin block chain processed around $ 70 million in payments for the month of June. A note from Morgan Stanley Since last summer we found that commercial adoption is practically nil.
In practice, since most coin owners accumulate currencies as speculators, it probably does not matter if traders' support for coin payments increases in the future. These speculators usually already have access to other forms of payment they use instead.
While many of the advocates are willing to say that bitcoin users can be their own sovereign bank, in practice, most users still deposit their currencies in a reliable intermediary as an exchange. According to Chain, last year more than 80% of transactions in a chain of blocks like bitcoin used a third-party service.
This means that most currencies are now located in centralized locations, coin exchanges and custody wallets, where the private key to control currencies is managed by a trusted third party, rather than physically distributed throughout the user base. . Because of these large holdings of concentrated currencies, to date, all but a handful of the major exchanges of coins and wallets have been compromised, some more than once. And victims typically have no recourse.
Many bitcoin enthusiasts also argue that bitcoin can enable secure and long distance transactions. But bitcoin has been around for almost 10 years and cryptocurrency still sees less daily activity from users than Venmo, Square Cash, WeChat Pay and other mobile payment platforms that are not open source or decentralized.
As a result, in recent years, several vocal promoters have tried to change the narrative, promoting cryptocurrencies as bitcoin that work in the way that gold has traditionally done. But this is the revisionist history. If the original objective was the operation of an electronic form of gold, not an electronic form of cash, the design of the cryptocurrencies would have allowed an offer of elastic money. But at this moment, there is a fixed amount of bitcoins that can be created.
And the owner prices we saw last year? A couple research notes, including those of
and Citi, estimated that less than $ 10 billion of real money from investors actually moved to all the cryptocurrencies last year. Since then, it is likely that retail investors have been withdrawn, therefore, the price drop after the peak of the price bubble in December and January.
The Federal Reserve estimates. together, all payment, clearing and settlement systems in the United States process around 600 million transactions per day (valued at around $ 12.6 billion). Bitcoin confirms around 300,000 transactions per day, whose added value is doubtful and is a subject of debate, since it can be difficult to cut data.
Another ongoing challenge is that cryptocurrency exchanges support a form of price discovery for a virtual currency that is normally measured by regulated sovereign currencies. This is potentially problematic because futures contracts for bitcoins in the United States are settled in dollars, rather than delivering the underlying bitcoin. Resolving a contract in a professional market against a price index built from a quasi-regulated retail market is an open invitation to all kinds of scams.
The Securities and Exchange Commission continually stresses that this chronic lack of transparency and vigilance does not protect investors. That's why there are still no bitcoin ETFs.
As measured in real money, currency bubbles will likely re-inflate and deflate over the next few years, but cryptocurrencies such as bitcoin are unlikely to become the dominant form of payment for primary users.
Mr. Swanson is founder and director of research at Post Oak Labs. Send him an email reports@wsj.com.
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