As Bitcoin prepares to turn ten, critics and proponents of the cryptocurrency continue to debate whether or not it can become a dominant world currency.
Bitcoin Is Turning 10 This Month
At the end of this month, Bitcoin will complete a decade of existence. The leading and the first cryptocurrency has had its share of ups and downs. From the devices of a few geeks in its earlier years, Bitcoin caught the attention of the mainstream media and the average person last year as its price rose from $1000 in January 2017 to $20,000 in December.
As the rate increased, so did cases of cyber-crime, hacking and frauds involving Bitcoin and other crypto-assets drawing scrutiny by regulators and governments. As the price crashed by over 70%, debates between the proponents and the critics also heated up. Many called Bitcoin the next bubble.
The US Securities and Exchange Commission (SEC) also stepped up surveillance as fundraising through ICOs grew. The regulator earlier in August rejected nine applications for Bitcoin-based ETFs (Which it is reviewing again currently).
Amidst all this, the blockchain and cryptocurrency eco-system continues to grow, as the technology matures. Earlier on Sunday, the Wall Street Journal published an article in which two authors debate whether Bitcoin can emerge as a dominant currency or not.
Arguments in Favour
According to Lisa Ellis, partner and senior equity analyst at MoffettNathanson LLC, the rejection of ETFs and the current bear market are a normal part of the growth cycle of any technology. She opines that not only will Bitcoin serve its purpose as a world reserve currency but also as a store of value especially in countries where the fiat currency is not stable or subject to manipulation.
Ellis argues that the need for an alternate reserve currency does exist as 98 countries have had an inflation figure of more than 10% at least once in the last 10 years. She believes that Bitcoin futures contracts like those on CME and CBOE which enable short selling will reduce volatility over time.
Regarding the scalability issue, Ellis says that the implementation of the lightning network will resolve the issue. She further claims that cold storage and custodial services will address the security aspect.
Ellis believes that with countries like Japan, Australia and the US making progress towards a better classification of cryptocurrencies, regulation will follow and expedite the pace of adoption.
Tim Swanson, founder, and director of research at Post Oak Labs has a few arguments against Bitcoin achieving dominance. Swanson argues that the notional value of Bitcoin and other cryptocurrencies is suspect as it can’t be related to a utility-driven value.
He says that while Bitcoin was designed for anonymous transactions, most customers that can buy the digital asset live in locations where identities are known, and regulations apply.
Swanson argues that most of the recorded transactional activity is not related to merchant adoption but trading by speculators. He goes on to say that most investors don’t care about adoption anyway as they have access to other payment methods.
He further states that while the blockchain technology was designed to bring about a de-centralized economy, it remains primarily centralized as most holders store their coins on centralized exchanges or with custody service providers. He even quotes data from Chainalysis – more than 80% transactions last year used a third-party service.
Swanson also highlights the problem with the price discovery mechanism on cryptocurrency exchanges as the futures contracts are settled in USD instead of the digital asset.
After reading the arguments from both sides, which side do you agree with? Do let us know in the comments below.
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