As financial companies have begun exploring blockchain technology, bitcoin’s promise as a payment disruptor has earned its fair share of skeptics who say the promise has been exaggerated.
In response to these naysayers, Arthur Levitt, Jr., former chairman of the Securities and Exchange Commission, and Peter Smith, CEO of Blockchain, have written a column in American Banker arguing that those who say bitcoin won’t disrupt payments are wrong. They address the key arguments, such as the claim that the U.S. and Western Europe are already well served by existing financial systems, that bitcoin can’t reach areas not served by the Internet, and that there are “last mile” costs for converting bitcoin to local currency.
In late June, Citi Research released a report titled, “Could the Bitcoin Blockchain Disrupt Payments?” The researchers’ short answer was “no.” One of the main arguments the naysayers was that the U.S. and Western Europe are already well served by existing financial systems.
Levitt and Smith agree that existing payment systems can work well for those within the established system. But for the 2.5 billion people excluded from the established system, bitcoin can change their lives.
While bitcoin is not superior to existing centralized payment systems, the superiority of this model does not exist for those to whom it is not available. The established financial industry has left more than a third of the world’s population without access to checking accounts, saving accounts or credit cards.
Blockchain technology provides the opportunity to allow the financial services sector to create a more global, open and efficient system giving unparalleled access to a stronger economic future for billions. It can help a woman in Afghanistan hold value independent of the men in her life, or a doctor in Venezuela watching the bolivar become worthless secure his assets by holding their value in bitcoin.
Another argument skeptics raise is that bitcoin can’t reach parts of the world that lack Internet access. A working paper from the United Nations Research Institute for Social Development questioned the viability of bitcoin within countries with poor infrastructure and technology access.
In response, Levitt and Smith argue that Internet connectivity is not an issue since there are at least 7 billion mobile phone subscriptions worldwide, nearly twice as many people as those with bank accounts or working toilets. The combination of mobile phone connectivity and digital currency promises to fundamentally overhaul a banking system to the benefit of those excluded from the so-called “superior” model.
The skeptics also argue bitcoin doesn’t solve cost challenges associated with remittances due to the “last mile” costs of making the conversion into local currency.
Levitt and Smith concur these costs exist, but they call it a misguided point since it assumes that conversion is not always the goal of those holding bitcoin. In many parts of the world, holding bitcoin is preferable to local currency.
Because bitcoin has only been around since 2009, skeptics often argue it is neither time-tested nor stable. Bill Gates has cited resiliency/volatility as a bitcoin pitfall.
Levitt and Smith counter that youth bears no relation to resiliency, just as age does not equate to security. They offered the recent Brexit vote in the U.K. as an example.
In response to Brexit, bitcoin experienced record transaction volumes since many Brits saw it as a safe haven while the pound tumbled. Despite bitcoin’s youth and its increasing use, its value remained stable since its global nature made it more resilient to geopolitical risk.
In response to the naysayers, Levitt and Smith contend that the bitcoin blockchain could disrupt payments.
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