When Bitcoin was first introduced, the ultimate plan for it was to replace traditional currencies. However; whilst the popularity has increased, it has not become a completely viable money option for the future, but experts Michael Lee and Antoine Martin believe that this is because of two shortcomings; convenience and volatility.
These two issues are not new problems and the issue of volatility have been highlighted by other financial institutions, who have highlighted the limitations that this will cause Bitcoin to face. Lee and Martin noted;
“This volatility is an inherent feature by design. Since there is no central bank that adjusts the supply of Bitcoin to accommodate changes in demand, Bitcoin’s value can swing sharply with demand. In a world where all things were priced in Bitcoin, this would likely translate into massive swings in inflation and economic activity…providing an ‘elastic’ currency to promote financial and price stability is a goal shared by the Federal Reserve System, the European Central Bank, the Bank of Japan, and many other central banks.”
The trouble is, that the current financial system actually works incredibly well, which means that introducing a new system could just cause a huge number of problems.
The above leads to more problems though; one of which is scalability. Although this is something that’s is constantly being worked on to try and improve; still, the process of verifying a transaction on the Bitcoin blockchain network, is still much slower than other traditional payment networks. Lee and Martin said;
“If we lived in a dystopian world without trust, Bitcoin might dominate existing payment methods…But in this world, where people do tend to trust financial institutions to handle payments and central banks to maintain the value of money it seems unlikely that Bitcoin could ever be as convenient as existing payment means.”
They have not ruled out the possibility that this could be fixed in the future; however, they are not truly convinced that any new technology will actually replace and out do the current system, saying;
“Fundamentally, we wonder whether a payment method designed to function where trust in institutions is completely absent can ever be as convenient as one where trust is required, but also already exists.”