Despite a never-ending hype surrounding the most popular cryptocurrency Bitcoin, noted economists still believe that it’s not a reliable payment method.
Most of the world still prefers cash, banks, and other traditional payment methods.
New York-based Federal Reserve economists say that in the United States and other countries, Bitcoin has not been able to replace checks, credit/debit cards, and cash because it is not a reliable currency.
The Slippery Slope
According to economists, Bitcoin is usually preferred if the nature of the transaction is suspicious. If a money-transfer is related to a dubious activity, traditional payment methods become risky and prone to suspicion.
Cryptocurrencies arguably solve the problem of making payments in a trustless environment, but it is not obvious that this is a problem that needs solving, at least in the United States and other advanced economies.
Furthermore, all cryptocurrency – including the popular ones such as Ethereum and Ripple – have several disadvantages of their own, even though they are growing day by day in use and popularity.
One of the main drawbacks being their price volatility. Bitcoin is the largest and most popular cryptocurrency, yet, the most volatile one as well.
Its price has shot up and down by thousands of dollars in a manner of minutes (sometimes seconds) which is why its usually not a good idea to store it for short periods of time – unlike traditional currencies which are controlled by banks.
Bitcoin-based transactions take longer to validate and consume much more electricity than the traditional means.
The electricity drained due to Bitcoin transactions is a stupendous 48 terawatt hours per year! According to another tech blog, this amount of energy could power 4.4 million United States homes. Surely, good old cash is a more practical and convenient way of conducting your daily transactions considering its minimal impact on electricity.
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. In a world where all things were priced in Bitcoin, this would likely translate into massive swings in inflation and economic activity.
Though a revolutionary step forward into the future, cryptocurrency still need to improve to become practical.
Their power drainage is massive and require Herculean hardware to function. Other than that, their decentralized nature allows criminals to make transactions easily, which cannot be controlled or traced by institutions.
Some of the biggest companies are working to make this technology more practical and more usable. This is because cryptocurrency are relatively fast, direct, and decentralized due to which they allow a larger degree of freedom for the traders unlike traditional mediums controlled by a single entity.