A recent report from Citibank has shown that Bitcoin proponents still have a long way to go when it comes to explaining the value proposition of this digital currency to the world. While the report made a number of interesting points when it came to disrupting credit card payments and building new innovations on top of the blockchain, the fact of the matter is the intrinsic value of the blockchain was missed by the staff behind the multinational bank’s short report on digital currencies. One of the final conclusions of the report was that the currency and payment system needed to be separated in order for the Bitcoin experiment to work. This isn’t the first time this theory has been floated, and the fact that it continues to be mentioned by various public figures goes to the point of the general public having a misunderstanding of what Bitcoin is all about. [divider]CCN[/divider]
[dropcap size=small]A[/dropcap]fter hearing similar remarks from the likes of Rand Paul, Peter Schiff, and others, it’s easy to feel like this point has already been covered at length by a variety of different people in the Bitcoin space. Having said that, there are still plenty of people out there who still don’t seem to get the point. You cannot remove the bitcoins from the Bitcoin blockchain because that removes the entire point of creating the blockchain in the first place. You only need to look at Satoshi Nakamoto’s first words to the world in regards to Bitcoin to figure out why he, she, or they created it in the first place:
“I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”
There’s no way to remove the source of value from the units of account on the Bitcoin blockchain without also compromising Satoshi’s original intentions with this new experiment in cryptocurrency. Once you’re bringing in a trusted third party to control the value or supply of bitcoins, you’re no longer dealing with cryptocurrency in its purest form. The report from Citibank made the claim that the technology behind Bitcoin may be more useful if it were used with US dollars or euros instead of bitcoins:
Many of these issues would be resolved if the payments function were separated from the store of value function, for example if the same cryptographic methods and ledger were used to secure USD or EUR transactions – accounting would match exactly what is in place today. Bitcoin advocates who benefit from Bitcoin appreciation argue strongly for its role as an asset, but the transactions technology is generic and efficient and less complicated than introducing an intermediate currency (Bitcoin) to facilitate USD to USD or USD to EUR transactions.
Now having made all these points about how combining the Bitcoin payment technology with a fiat currency cannot work, it’s still important to realize that the main problem pointed out by Citibank is correct. If there was one thing holding back mainstream adoption of Bitcoin right now, it would definitely be the volatility associated with the payment network’s own currency. The volatility of the bitcoin has slowly declined over time, and we’re still in the early years of a rather revolutionary invention in the world of finance.
Whether the bitcoin is ever able to achieve a relatively stable price is still up for debate, but tying the currency to some other asset should not be viewed as a viable solution. It’s also important to remember that the US dollar and euro are not the only two currencies competing with the bitcoin in terms of price stability. Bitcoin is not just a payments innovation. It is a complete revolution in money that removes transactional and monetary power from banks and governments. This revolution in money can only succeed with a truly decentralized, free market currency at its core.
Last modified (UTC): June 3, 2014 11:30