08 May As Bitcoin’s payment options grow, BTC true future role up for debate
Bitcoin has come a long way in the decade since its birth in the digital underground of the dark web. Now, it’s the subject of countless op-eds, Reddit threads and Twitter debates. But, the true extent of Bitcoin’s mainstream appeal is still up for debate. Bitcoin is an endlessly fascinating topic, but with such a long list of possible uses that it’s hard to know where to start.
Every day, there are more and more ways to pay for goods and services with Bitcoin. The cryptocurrency is accepted by hundreds of businesses worldwide and has even been integrated into apps and services banks might otherwise have disregarded. But with Bitcoin’s acceptance becoming more widespread, it begs the question: What is the future of Bitcoin? Is it a currency, a store of value, or something else?
In the August 2020 article Is Bitcoin Money? Peter Hazlett and William Luther have written that there is only a small corner of the internet where regular transactions take place with bitcoin acting as a medium of exchange. But this corner can be transformed into a room or even a house.
Demand for bitcoin has certainly increased in the past year, said co-author Luther, an associate professor of economics at Florida Atlantic University, in a recent interview with Cointelegraph. As new users discover bitcoin and existing users find even more bitcoin, it is only natural that more and more people will consider using bitcoin for payments.
Others are currently seeing a resurgence of opportunities related to cryptocurrencies. Without a doubt, Joanna Wasik, a partner at law firm BakerHostetler, told Cointelegraph, adding: More and more people own cryptocurrencies, and more and more companies accept them – sometimes even with an advantage over fiat. There has also been an influx of exchanges and payment platforms that facilitate these transactions. I don’t think that’s going to happen without asking.
Last week it was reported that eBay was exploring crypto payments, including NFT auctions, and PayPal was reportedly discussing the development of its own Stablcoin. Elsewhere, the Swiss canton of Zug recently began accepting tax payments in bitcoin (BTC) and Ether (ETH).
In recent months, several major announcements from major financial services companies indicate a push to consider cryptocurrencies as a payment method, Christine Smith, CEO of the Blockchain Association, told Cointelegraph, citing Visa, PayPal and, from the world of cryptocurrency, BlockFi.
Still too volatile?
However, not everyone believes in the viability of bitcoin as a medium of exchange. Aswat Damodaran, a professor of finance at New York University’s Stern School of Business, told Cointelegraph: I don’t see it, and the reasons are simple: It is an incredibly inefficient currency, where the transaction costs outweigh the benefits.
These inefficiencies are likely to increase as the BTC approaches its $21 million limit. It’s also too volatile for people to trust, he added, though he didn’t rule out other cryptocurrencies as possible payment options.
President of the St. John’s Federal Reserve In the 19th century, James Bullard of St. Louis noted that He said that in the 19th century – before the American Civil War – private banks in the United States often issued their own banknotes, which he said is similar to today’s cryptocurrencies. They were all negotiating with each other [i.e. the tickets], and they were negotiating at different discounts from each other, and people didn’t like that at all. People want a single currency like the U.S. dollar, Bullard said.
Since bitcoin is not yet widely used as a medium of exchange, more and more people are suggesting that bitcoin’s actual role could be that of an alternative store of value, similar to that of gold. But Luther doesn’t think it makes much sense, Cointelegraph tells us:
I don’t understand those who say bitcoin is better suited as a store of value than as a medium of exchange. An asset can only be used as a security if a positive price can be expected in the future. And it will only have a positive price in the future if it has an advantage in the future.
To say that bitcoin could be a store of value today and maybe a medium of exchange someday – but maybe not – is putting the cart before the horse. After Luther: The expectation is that bitcoin will act as a medium of exchange in the future – that its price will fluctuate today because people expect it to be more or less useful as a medium of exchange in the future. Moreover, it considers that, subject to its future use as a medium of exchange, it can also serve as a store of value.
Meanwhile, bitcoin remains the most widely used crypto payment platform, according to BitPay, which processes about $1 billion in crypto payments per year. Bitcoin accounted for 72% of BitPay’s crypto payments in March (by number), well ahead of bitcoin cash (BCH) (14%) and ETH (10%), which ranked second and third respectively.
BTC may be sufficient
In fact, there are good reasons why cryptocurrency advocates continue to use BTC for transactions – even though other cryptocurrency platforms can be faster and with lower costs. I don’t like to spend my bitcoins, but I know that once I say these words, send me your bitcoin address, the transfer will happen quickly and cheaply, Mati Greenspan, founder of Quantum Economics, said in a recent newsletter, adding further:
I’m sure my analyst will be happy to receive bitcoins and I have a supply of bitcoins that I can very well use as payment. But if I say to him: Hey, let me send you some XLMs, the response probably won’t be enthusiastic because he has to spend time and energy looking for portfolios and trades.
Bitcoin now occupies a somewhat unusual role as a niche currency, as Lawrence White of the Cato Institute writes on his blog. It is better suited than other media to making certain payments which, even for legitimate purposes, may be subject to censorship if made through payment systems controlled by national governments and central banks. For example, a human rights organization in Belarus has used the BTC network to transfer money to striking workers – a method the government cannot stop.
Others expect BTC to be universally accepted as a means of payment. Bill Zielke, chief marketing officer of BitPay, told Cointelegraph that cryptocurrencies are already a major payment method, with volumes exceeding one billion per year. Companies like Newegg and Apmex, which are among the top 100 retailers, are already seeing a significant percentage of their sales in bitcoin and other cryptocurrencies.
Need for more stability
However, there is still a long way to go before bitcoin and/or other cryptocurrencies are widely used as a means of payment. The most important thing is that cryptocurrencies become more stable and stop being a speculative vehicle, Wasik said, adding: If I think my bitcoins will increase in value, I’m not going to use them to buy a car. I’m going to sit on it to accomplish more.
Damodaran agrees, as people considering using bitcoins to buy goods fear that their BTC will be worth 30% more in a day or two. Sellers – dealers, for example – don’t want that because they fear exactly the opposite. added Damodaran: A good cryptocurrency will only succeed if it has the support of governments, a sort of trusted authority, to reduce transaction costs and become less of a speculative game.
Related: Taproot’s next update for Bitcoin and why it’s important for the network
The two main obstacles, in my opinion, are the volatility of buying power and the relatively small number of transactions it can handle, Luther told Cointelegraph : Level 2 solutions have already gone a long way towards eliminating the second problem – and are likely to go even further. This of course means that most bitcoin transactions on the blockchain will be for settlement purposes only.
There are regulatory issues that we believe will drive wider adoption, such as the introduction of a de minimis exemption for cryptocurrency transactions, Smith added. For example, cryptocurrency transactions under $200 can be tax-free.
The regulatory system needs to change, or at least become more understandable to people, Wasik said, which raises another question: How many people who use cryptocurrencies for payments know exactly what the tax implications of their payment transactions are?
Do people want a single currency?
But what about Bullard’s claim that people don’t want to deal with all these private forms of money. What they really want is a single currency like the US dollar.
Bullard is right – people generally want a common currency, Wasik replied, but Bullard is overlooking some important aspects of cryptocurrencies, she added. They are decentralized and deflationary – or at least non-inflationary. By comparison, fiat money, created and managed by governments, is inherently inflationary. …] Dollars lose their value over time.
Bullard, according to Luther, also overlooked some important historical details. According to him, most banknotes issued before the Civil War were not discounted – they were usually exchanged at face value. Only when they were exchanged by the issuing bank were they discounted. Notes issued in Chicago, for example, could be traded at a discount in New York – but only because it was expensive to redeem them. Luther also stated:
Collectors of banknotes had to collect them and return them to the bank that issued them to be exchanged for gold. Then they had to transport the gold back home. And of course, they risked theft in both directions.
Banks would have liked to offer more stringent repayment options, but legal restrictions on bank branches prevented them from doing so. After Luther: Far from an uncompromising commitment to a single redeemable currency, as Bullard claims, the historical evidence shows that many redeemable currencies can prevail even under a poor regulatory regime that makes them far less efficient than they would otherwise be.
If BTC fails, can stable coins survive?
Still, the problem of cryptocurrencies’ volatility remains, which is why some believe that the solution to cryptocurrencies as a payment mechanism starts with stablecoins. We are seeing an increase in the use of stable components, Zielke replied, adding: Accepting or paying with stablecoins opens up new opportunities for global businesses that need the stability of the dollar, but the security, speed and efficiency of blockchain payments.
I like the idea of barn spaces, Luther said. But as with traditional cryptocurrencies, improvements are still possible. First, they are generally stable against the dollar, which by definition means that they are never better managed than the dollar. The second problem is that they generally require the issuer to have confidence that the delivery will be well managed, which Luther says is a risky proposition.
Related: The Stablecoin Method: The road to stability, trust and decentralisation
Damodaran expressed skepticism about the usefulness of Stabelcoins, which he described as solutions to problems, further adding: Of all the problems in the world, the lack of a functional currency is not in the top 100 in most countries of the world.
But that’s a problem in some countries, which is why Smith, for example, thinks cryptocurrency as a payment method could spread to other non-U.S. jurisdictions first, especially those that don’t have the same access to payment systems that facilitate domestic transactions.
At the same time, White cited several other relevant cases of BTC use, including fundraising by militants in Nigeria, Hong Kong, and Russia, outsourcing of savings by people fleeing Venezuela, money transfers to Iran, and peer-to-peer transfers in China between people trying to escape government financial scrutiny. He concluded: This usage – and expectations of broader future usage – is enough to support the positive value of the bitcoin market.
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