Bitcoin’s growth – not government regulation – could kill bitcoin, according to one financial industry observer. David Yermack, chairman of the New York University (NYU) Stern School of Business finance department, told Fortune Magazine that bitcoin’s growth has jammed its payment system to the extent that some transactions take hours to process.
He said tens of thousands of unprocessed transactions are queued up, and bitcoin-accepting vendors are opting out of the network.
“It’s like trying to fit more cars on the highway where the highway needs to be widened at some point,” he said.
Yermack called it ironic that bitcoin’s democratic process, afforded by its decentralized nature, made it popular but is now undermining it. The service currently has thousands of miners to clear a transaction. For the system to grow, the miners must agree on a solution to the current problem.
He said people saw the bottleneck coming.
Members who have invested thousands of dollars to mine bitcoin stand to lose their investment once the system changes. Those with the fastest computers – most of whom happen to be in China –are still profiting, Yermack said, and these individuals, therefore, have no reason to change the rules of the bitcoin system since others will benefit at their expense.
Yermack last week told Business Because , a news site for business schools, that blockchain’s potential appears to be “enormous,” noting that most of the big banks and other financial institutions are looking closely at the technology. The NYU Stern School of Business was one of the first to teach the blockchain in an MBA program. Last year it launched its executive course. Now they are exploring what is poised to disrupt it.
Fortune noted that besides the bottleneck Yermack referenced, other issues are causing concern for bitcoin and blockchain.
Jamie Dimon, J.P. Morgan’s chief executive, said countries are unlikely to back changes in their currencies and have too much pride in their currencies. He told the Fortune Global Forum last fall that no government will support a virtual currency that circumvents borders and lacks the same controls as national currencies.
Other innovations such as social media took years of testing and revising before they perfected their platforms. Sherpa Foundry, known as the person coined the term “social media,” registered domain names such as socialmedia.org and socialmedia.com in the late 1990s.
Foundry said product market fit cannot always be timed. It is not only a question of the actual product, she said, but also the willingness to adapt and accept change, the environment, and the timing of what is taking place in the economy, government conditions, society and access to pervasive platforms.
Also read: JP Morgan CEO:Bitcon is going nowhere
The bitcoin blockchain is not the only blockchain facing issues. Dimon and executives at nearly every big bank have expressed interest in blockchain. R3 CEV, a fintech company, said earlier this week that 40 of the world’s largest banks have tested a system using blockchain technology to trade bonds. Blythe Mathers, an ex-JPMorgan executive who heads Digital Asset Holdings, is seeking to bring blockchain technology to global markets. Sallie Krawcheck, once among the highest-ranking women on Wall Street, of Digital Asset Holdings, is seeking uses for blockchain technology in more traditional financial markets.
Yermack said there are a ways to go before the kinks are worked out for the idea to work. He said it is a problem for all blockchains, not just bitcoin. He said the idea has huge potential, but the basic governance problems have not been thought through.
Images from Shutterstock and NYU.