The world’s banks and governments are releasing statements on Bitcoin periodically, with some believing it has interesting potential and others dismissing it altogether.
The latest news comes from the Bank of England, which released a statement yesterday in which it outlined its thoughts on Bitcoin.
The statement talks about Bitcoin’s current state, what users can purchase for it – “anything from pizza to webhosting” – and what the future holds for the Bitcoin economy.
And they aren’t optimistic about it.
Limitations
The Bank of England recognizes Bitcoin as an advanced technology, but they had little faith in its ability to work on a larger scale in the same capacity fiat currency currently does.
They pointed out several issues, including the sustainability of its low transaction fees. They believe that while transaction fees are currently low, they’re bound to increase in the future as the reward for mining decreases. And since the supply of Bitcoin is fixed, “in the long run it will not be possible to sustain a subsidy to miners”. As a result,
Digital currencies with an ultimately fixed supply will then be forced to compete with other payment systems on the basis of costs. With their higher marginal costs, digital currencies will struggle to compete with centralised systems unless the number of miners falls, allowing the remaining miners to realise economies of scale.
A Fiat Collapse?
However, the Bank of England did mention that Bitcoin could become more widely adopted as faith in fiat currency collapses.
While some may believe this situation to be unlikely – the Bank of England itself called the scenario “implausible” – many are already there.
Amagi Metals CEO Stephen Macaskill famously said in a recent interview that “the dollar is screwed”. He and his company obviously have very little faith in the current fiat currency system.
In fact, their faith in fiat money has been so shaken that they recently announced by the end of 2016 they would be accepting cryptocurrency only for precious metal sales.
While most are clearly not at that point yet, the confidence in central banking systems continues to erode as those in charge of them are proven more and more corrupt.
Conclusion
The Bank of England concluded that cryptocurrency has potential, but because of their currently limited usage, “there are a variety of incentive problems that are likely to prevent their widespread adoption in the long run.”
They also stated that:
digital currencies do not currently pose a material risk to monetary or financial stability in the United Kingdom. Should they achieve limited adoption as a payment system, they are unlikely to undermine the Bank’s ability to achieve monetary stability. While that could, in theory, change if sterling were abandoned in favour of an alternative currency for a significant fraction of the economy, such a scenario is considered extremely unlikely at present.
Bank of England: Cryptocurrency "Unlikely To Undermine" Their Efforts
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