An August 2020 paper stated, “Is Bitcoin Money?” Peter Hazlett and William Luther wrote that there is only “a small corner of the Internet where transactions are routinely carried out using Bitcoin as a medium of exchange”. But that corner can now become a room or even a house.
“The demand for Bitcoin has certainly increased in the last year,” said co-author Luther, assistant professor of economics at Florida Atlantic University, in a recent interview with Cointelegraph. “As there are new users with bitcoin and existing users with more bitcoin, it is only natural that more people would consider using it for payments.”
Others are seeing a recent surge in crypto payment options. “Definitely,” Joanna Wasick, partner at law firm BakerHostler, told Cointelegraph, adding, “More and more people own cryptocurrencies and more and more companies are accepting them – sometimes with an incentive to Fiat.” There is also an influx of exchanges and payment platforms that make this type of transaction easier. I don’t think that will happen without asking. “
For the past week, eBay reportedly explored crypto payment options, including NFT auctions, while PayPal was due to discuss developing its own stable coin. The Swiss canton of Zug recently started accepting tax payments in Bitcoin (BTC) and Ether (ETH).
“In the past few months there have certainly been some important announcements from established financial services companies that point to the dynamic of viewing crypto as a payment option,” Kristin Smith, executive director of the Blockchain Association, told Cointelegraph, citing Visa, PayPal – and from the crypto world – BlockFi.
Still too volatile?
However, not everyone believes that Bitcoin is suitable as a medium of exchange. Aswath Damodaran, professor of finance at New York University’s Stern School of Business, told Cointelegraph, “I don’t see this and the reasons are simple: it’s an incredibly inefficient currency, the transaction costs of which outweigh the benefits.”
These inefficiencies are also likely to multiply as BTC approaches its 21 million mark. “It’s also far too volatile for people to trust,” he added – although he doesn’t rule out other cryptocurrencies as potential payment options.
James Bullard, president of the St. Louis Federal Reserve, noted that in the 19th century – before the American Civil War – it was common for private US banks to issue their own banknotes, a practice he believes is analogous to today’s Cryptocurrencies is. “They were all trading around [i.e., the banknotes]and they were trading with each other at different discounts, and people didn’t like it at all. “People want a single currency like the US dollar,” Bullard said.
Since Bitcoin has not yet found widespread use as a medium of exchange, growing numbers suggest that its real role could actually be considered as an alternative store of value like gold. But Luther doesn’t think that makes sense when he says to Cointelegraph:
“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 act as a store of value if a positive price is expected in the future. And it will only have a positive price in the future if it has a use in the future. “
To say that Bitcoin can be a store of value today, and possibly a medium of exchange one day – if perhaps not – could put the cart in front of the horse. In Luther’s view, “Bitcoin is likely to function as a medium of exchange in the future – its price fluctuates today as people expect it to be more or less useful as a medium of exchange in the future.” Furthermore, he believes that “depending on its usefulness as a medium of exchange in the future, it could also serve as a store of value”.
Bitcoin remains the most widely used crypto payment platform, processing around $ 1 billion in crypto payments annually, according to BitPay. In March, Bitcoin accounted for 72% of BitPay’s crypto payments (by number), well ahead of Bitcoin Cash (BCH) (14%) and ETH (10%), which ranked second and third.
BTC can be good enough
There are indeed valid reasons why crypto partisans continue to use BTC for transactions – even when other crypto platforms with lower fees may be faster. “I hate to spend my Bitcoin, but I know that once I say the words ‘Just send me your Bitcoin address,’ the transfer is quick and cheap,” said Mati Greenspan, founder of Quantum Economics, in a recent release Newsletter. add further:
“I know my analyst will be happy about Bitcoin and that I have a supply of Bitcoin that I can easily pay with. However, if I tell him, “Hey, let me send you XLM,” the answer is likely not to be thrilled as he would likely have to invest time and energy researching wallets and exchanges. “
Bitcoin now plays a somewhat unusual role as a “niche medium of exchange,” said Lawrence White of the Cato Institute in a blog post. “It is better than other media to make payments that, even if carried out for legitimate purposes, could be censored if they were routed through payment systems controlled by national governments and central banks.” For example, a grassroots human rights organization in Belarus has used the BTC network to transfer money to striking workers in ways the government cannot stop.
Others expect BTC to gain mainstream adoption as a payment option. Bill Zielke, BitPay’s Chief Marketing Officer, told Cointelegraph: “Crypto is already a significant payment method with more than a billion volumes annually.” Firms like Newegg and Apmex, both top 100 traders, already see “a significant percentage of their sales in Bitcoin and other cryptocurrencies”.
Need for greater stability
However, more needs to be done before Bitcoin and / or other cryptocurrencies become widespread as payment options. “Above all, the cryptocurrency needs to become more stable and no longer be a speculative vehicle,” said Wasick, adding, “If I think the value of my Bitcoin will increase, I will not use it to buy a car.” . I’ll sit on it so I can get more profits. “
Damodaran agreed because people considering using Bitcoin to purchase items fear that their BTC will be worth 30% more in a day or two. Seller – e.g. B. Dealers – “don’t want to get it because they worry about the exact opposite.” Damodaran added, “For good crypto to do it, it needs to get governments to buy-in, some version of a trusted authority to cut transaction costs and [become] less of a speculative game. ”
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“In my view, the two biggest obstacles are volatility in purchasing power and the relatively small number of transactions it can handle,” Luther told Cointelegraph, adding, “second tier solutions have gone a long way in eliminating the second Problem – and will no doubt go further. Of course, this means that most of the Bitcoin transactions in the chain are just for settlement. “
“There are regulatory issues that we believe would encourage wider adoption, such as the introduction of a de minimis exception for cryptocurrency transactions,” added Smith. For example, cryptocurrency transactions of less than $ 200 can be tax-free.
“The regulatory system needs to change, or at least become clearer for people,” Wasick said, asking, “How many people who use crypto 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 are not interested in dealing with all of these private forms of money? What they really want is a single currency like the US dollar.
“Bullard has a point – people generally want a single currency,” Wasick replied, but Bullard is overlooking some key aspects of cryptocurrencies, she added. They are “decentralized and deflationary – or at least not inflationary – by nature”. In comparison, fiat, created and managed by governments, is “inherently inflationary. […] Dollars lose value over time. “
In Luther’s view, Bullard also glossed over some important historical details. Most pre-Civil War banknotes were not discounted, he said – “they were usually traded at face value.” Only when they circulated far away from the issuing bank were they discounted. For example, banknotes issued in Chicago could be traded at a discount in New York – but only because they were costly to redeem. Luther further stated:
“Banknote collectors had to bundle them up and send them back to the issuing bank to be redeemed for gold. Then they had to bring the gold home. And of course they risked theft both ways. ”
Banks would have liked to offer closer redemption options, but the regulatory restrictions on branch banks did not allow this. According to Luther: “Far from demonstrating an uncompromising desire for a single redeemable currency, as Bullard claims, the historical evidence suggests that many redeemable currencies could prevail even under a poor regulatory regime that makes them far worse off than they would otherwise. “
If BTC doesn’t make it, could stable coins prevail?
Still, the volatility problem with crypto remains, which is why some believe that the solution for crypto as a payment mechanism starts with stable coins. “We’re seeing the use of stablecoins on the rise,” Zielke replied, adding, “Accepting or paying with stablecoins opens up new opportunities for global companies that require the stability of the dollar but the security, speed and efficiency of blockchain payments. “
“I like the idea of stable coins,” said Luther. But as with traditional cryptocurrencies, they still have to be improved. “For one thing, they tend to be stable against the dollar, which by definition means they will never be managed better than the dollar.” A second problem is: “As a rule, one has to trust the issuer in order to manage the offer appropriately – a risky undertaking,” said Luther.
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Damodaran was skeptical of the usefulness of stablecoins, which he called “solutions to the problem,” adding, “Of all the problems in the world, not having a working currency in much of the world is not in the top 100 . ”
However, this is a problem in some regions, which is why Smith believes that crypto may be widely used as a payment option “in other countries outside the US”, especially in countries that “do not have equal access” to payment systems that use internal transactions simplify. “
Meanwhile, White listed several other current BTC use cases, including “fundraising campaigns by activists in Nigeria, Hong Kong and Russia, savings expatriation of people fleeing Venezuela, remittances to Iran and peer-to-peer intra-China transfers among people who want to avoid the state’s financial surveillance. “He concluded,” Such uses – along with predictions of wider future usage – are sufficient to maintain Bitcoin’s positive market value. “