The Big Q: What is a Bitcoin good for?
$BTCUSD$V, $MA, $PYPL, $USD, $EUR, $JPY
There are 2 answers to that Question:
- Bitcoin is money, or
- Bitcoin is a payment system.
Then you ask, What is Money.
Well, money is metaphysical mystery to be found in modern economics.
The best way to think about it is that if Bitcoin is a payments system, it will compete with Visa (NYSE:V), or PayPal (NASDAQ:PYPL), or bank settlement, or some other system of moving money from here to there and bayond.
If it is money, it will compete with USD, EUR and JPY.
Bitcoin’s as a payment system
This may be more useful, because it would not need to dethrone other currencies, something that the governments that run those currencies will not, do not like.
Now, if you think Bitcoin is a payments system, you run into a few problems.
The 1st is that bitcoin has severe scaling problems. It is designed for transactions to take 10 mins or more to clear. And its overall architecture means it simply cannot clear many transactions, a tiny fraction of what Visa and Mastercard (NYSE:MA) handle daily worldwide.
For Bitcoin to compete as a payment system, it has to offer the same benefits that Visa does: rapid transfers of funds, immense scale, protection against theft, and the ability to dispute charges, all at a reasonably low transaction fee.
Or, it has to be better at something than Visa is. The only area where it can really be said to better than a credit card lies in the privacy.
That being the case it is hard to see how Bitcoin-as-payment-system can justify current valuations.
To fix and adapt is unlikely and not practical. And so Bitcoin starts to look like money.
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