Thursday, 12 October 2017

More about Bitcoin and cryptocurrencies

I do not know enough to pontificate, so what I write about this is a guess (please contradict if you wish).

Big institutions including governments are looking into cryptos and blockchain technology (not necessarily the same thing) for their own reasons. But that doesn't mean that an independent cryptocurrency such as Bitcoin would not continue and indeed prosper. In the long term that means people being able to buy things and services with it.

In the pipeline are systems that will allow contactless payment much like Applepay but with Bitcoin, with virtual debit cards loaded from Bitcoin accounts by the user. It could be attractive for at least two reasons: (1) being able to access foreign currency when abroad without having to pay exorbitant fees and spreads on currency exchange; (2) having a store of value that would not depreciate significantly in an inflationary crisis.

Once people start actually using Bitcoin for purchases its value might well stabilise, or at least become less volatile, as now I presume the volatility is largely driven by speculation. The threats as I see them are (1) most of the Bitcoin mining takes place in China, where electricity is relatively cheap. This problem will not go away until we have quantum computing, and of course then we have to hope that someone will redesign the blockchain technology to make it tamper-proof again; (2) the unresolved speed/ capacity problem. On the up side, given Bitcoin's ultimately limited supply, if it does not collapse then the value will ultimately rise - quite a lot.

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