An expert on digital currencies from Ernst & Young claimed that Bitcoin doesn’t have to replace normal currency to have a future. The expert described a number of myths around the currency, one of which was its position as a replacement for “fiat” money.
Fiat currency is essentially currency the government decrees to be legal tender. And Bitcoin was obviously not created as a replacement for fiat currency. There are many people talking about how Bitcoin is going to take over, or how it doesn’t have the properties lending to it being used widely. The currency was really created to be used in electronic commerce and for micro transactions. If you remember this, the future risks for the currency take on a different shape. At the moment, many experts are concerned with such problems as price volatility and the deflationary nature of Bitcoin. Since there will only ever be 21 million Bitcoins, it has led some to fear that the currency will have a “deflationary” element, leading to each unit getting more valuable over time.
Deflation is usually blamed for the “lost decade” in Japan, and Ernst & Young emphasized that it adheres to the mainstream economic view that mild positive inflation is healthy for a national currency. However, when talking about using Bitcoin as an ecommerce tool, deflation seems to be not necessarily problematic.
Instead, the experts highlighted problems of speed and fraud control as the most pressing priorities for the virtual currency. To prevent fraud, the Bitcoin network has to “confirm” transactions every ten minutes. This is one of the weaknesses with Bitcoin – the problem is that you generally have to wait for 5 to 6 transaction confirmations before making sure that your money hasn’t been spent twice, which can take up to 40 or 50 minutes.
Some businesses have decided that speed is worth the risk. One pub in London takes Bitcoin and accepts unconfirmed transactions as payment, for example. However, not every retailer is able to that – especially if they are selling goods more expensive than beer.
Ernst & Young believes that there are definite possible gains in Bitcoin, in terms of lowered transaction costs. On the other side, there are also some significant negatives, in terms of accountability and how to deal with anonymous users and how to regulate in the market.
Fiat currency is essentially currency the government decrees to be legal tender. And Bitcoin was obviously not created as a replacement for fiat currency. There are many people talking about how Bitcoin is going to take over, or how it doesn’t have the properties lending to it being used widely. The currency was really created to be used in electronic commerce and for micro transactions. If you remember this, the future risks for the currency take on a different shape. At the moment, many experts are concerned with such problems as price volatility and the deflationary nature of Bitcoin. Since there will only ever be 21 million Bitcoins, it has led some to fear that the currency will have a “deflationary” element, leading to each unit getting more valuable over time.
Deflation is usually blamed for the “lost decade” in Japan, and Ernst & Young emphasized that it adheres to the mainstream economic view that mild positive inflation is healthy for a national currency. However, when talking about using Bitcoin as an ecommerce tool, deflation seems to be not necessarily problematic.
Instead, the experts highlighted problems of speed and fraud control as the most pressing priorities for the virtual currency. To prevent fraud, the Bitcoin network has to “confirm” transactions every ten minutes. This is one of the weaknesses with Bitcoin – the problem is that you generally have to wait for 5 to 6 transaction confirmations before making sure that your money hasn’t been spent twice, which can take up to 40 or 50 minutes.
Some businesses have decided that speed is worth the risk. One pub in London takes Bitcoin and accepts unconfirmed transactions as payment, for example. However, not every retailer is able to that – especially if they are selling goods more expensive than beer.
Ernst & Young believes that there are definite possible gains in Bitcoin, in terms of lowered transaction costs. On the other side, there are also some significant negatives, in terms of accountability and how to deal with anonymous users and how to regulate in the market.
No comments:
Post a Comment