Last week, the Bank of International Settlements published a paper that made cryptocurrency converts around the world see red.
The paper forensically dismantled and – seemingly – disproved the notion that cryptocurrencies would ever be used as genuine currencies.
The paper was pretty convincing, and hinged on the argument that if cryptocurrencies became a mainstream form of payment, the immense computing power required to record the transactions would quite literally break the internet.
“[The] issue goes well beyond storage capacity, and extends to processing capacity: only supercomputers could keep up with verification of the incoming transactions,” the paper stated.
“The associated communication volumes could bring the internet to a halt, as millions of users exchanged files on the order of magnitude of a terabyte.”
The Swiss-based Bank of International Settlements is known as the ‘bank for central banks’. It is, in other words, about as mainstream as you get.
Another mainstream monetary institution, the Reserve Bank of Australia, has also taken a fairly dismissive view of cryptocurrencies.
This week the RBA’s head of payments policy Tony Richards said: “The use of cryptocurrencies in Australia is just so trivial that it doesn’t have an effect, and I think we can assume that will be the case for a long time.”
The financial establishment’s attitude to cryptocurrencies is, in other words, pretty dismissive. Yes, the technology is clever and interesting; but no, bitcoin, ethereum, litecoin and ripple will never rival the dollar, the euro, the yen or the pound.
For a non-crypto convert, this line of thinking is comfortable and appealing. It makes intuitive sense.
The trouble is, as soon as you lift the curtain and venture into crypto-land – a strange, futuristic world inhabited by tech whizzes who speak an entirely different language – all that conservative comfort vanishes.
Jason Lee, a Melbourne-based director of blockchain company NEM, said that regardless of what the BIS said, the reality is people are already using cryptocurrencies as real currencies.
He gave some interesting examples. Brisbane Airport accepts payments in cryptocurrency. Mr Lee himself recently bought a coffee with crypto at the airport.
He also pointed to the small Queensland town of 1770 – where ‘beef meets reef’ – in which there are 30 businesses that accept cryptocurrency.
Mr Lee said website travelbybit.com listed 250 merchants who accepted bitcoin, while Living Room of Satoshi allowed consumers to pay their utility bills in bitcoin.
“There are companies working hard to make cryptocurrency payment mainstream. It will be an evolving conversation,” he said.
“Cryptocurrency and money more and more will continue to interweave with each other.”
But while investing in cryptocurrency may now be mainstream, making purchases in it is decidedly niche. Trying to find a company that takes payments in cryptocurrency is very difficult, even with the help of coinmap.org.
The New Daily managed to track down one business that used to accept payments in bitcoin – a gift shop in Melbourne called Vera Chan.
Founder Jenny Zhang said the brick-and-mortar shop had closed down late last year, and the business was now online only.
“When the shop was open we got a lot of interest, but not many people were actually buying things in bitcoin – overall about 10 to 20 every year,” Ms Zhang said.
She said she had no plans to make bitcoin payment available on the online store, saying the lack of interest meant it “wasn’t worth” setting up the systems.
However, she said she believed cryptocurrency payment would eventually become mainstream, but probably not for “the next couple of decades”.
A store of value
The true believers in cryptocurrency have a revolutionary, almost religious fervour for the subject. It’s a way of freeing the little guy from the tyranny and inequity of the global financial system.
But others in the industry have a more pragmatic approach.
Rabbi Ahmed, head of trading at Bit Trade, said the BIS view was essentially correct: cryptocurrencies would probably never be widely used in the same way as fiat currencies.
“The early adopters believe in the utopia that cryptocurrencies will replace fiat currencies. But to think governments will stand down and let cryptocurrencies take over is absurd,” he said.
He said cryptocurrencies would find their true place, not as currencies, but as an asset akin to gold – “a store of value” and a “safe haven against the market crashing”.
He predicted a “handful” of cryptocurrencies – including bitcoin – would survive, but most would disappear (he described the huge number of ‘initial coin offerings’ in recent years as a “cash grab”).
And he agreed with the financial establishment that, while cryptocurrency may never take over from centrally controlled money, blockchain technology would radically transform the world of money.