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Bitcoin can become a dominant currency?

Bitcoin is 10 years old at the end of the month. And in the last decade, there has been no shortage of securities on the inevitable rise – or inevitable fall – of it and other cryptocurrencies.

Along with all the talk came a meteoric increase in the price of bitcoin, which ended at the end of last year. The price of Bitcoin has risen by almost 1,332% in 2017, reaching a maximum of $ 19,783.21 on December 17. Since then, however, the price of bitcoin has plunged by more than 66% to around $ 6.436, starting October 19.

The price fluctuations arrive while the cryptocurrency is subjected to a more in-depth control.

In August, the Securities and Exchange Commission rejected nine fund proposals exchanged in bitcoins. Prior to that, the SEC rejected, for the second time, a bitcoin ETF proposed by the entrepreneurs Cameron and Tyler Winklevoss. Obtaining approval for a bitcoin ETF could greatly contribute to helping the encrypted market attract traditional retail investors, but the SEC has concluded that there is not enough transparency in the cryptocurrency markets to make sure that prices do not are manipulated. The Wall Street Journal recently reported how bots are manipulating the price of bitcoins on cryptographic exchanges.

A report from the New York attorney general's office in September shared some of the SEC's concerns.

Meanwhile, Fidelity Investments announced last week that it will store and exchange digital currencies, including bitcoins, for hedge funds and other professional investors

And bitcoin is a success in the developing and frontier markets, where cryptocurrency is often seen as a refuge from political and economic turbulence and a way to overcome financial obstacles, including the lack of conventional banking services.

In the midst of all this, the debate continues on the long-term prospects of bitcoin as a vital and dominant currency.

YES: you need alternatives to today's currencies

By Lisa Ellis

Bitcoin can become a dominant currency?

Bitcoin, which is approaching its tenth birthday on October 31, is experiencing a difficult 2018. At the end of October, the cryptocurrency price has fallen by about 54% since the beginning of the year and has not paid off $ 10,000 since the beginning of March . And it has suffered a series of rejections and delays by the Securities and Exchange Commission in attempts to launch bitcoin ETFs.

The stopping jokes of 2018 are, in my opinion, the normal growing pains of a developing technology, and bitcoin will prevail. The cryptocurrency has a long-term role in society as a universal and alternative currency, functioning both as a means of payment and as a store of value, in economies where the legal currency is unstable or subject to manipulation.

Firstly, there is a need and demand for an alternative to legal tender. The International Monetary Fund's World Economic Outlook data show that 50% of the world's population lives in one of the 98 countries that have had at least a year in the last 10-since the bitcoin existed-when inflation was higher than 10%.

In countries with high inflation, or with an otherwise volatile convertible currency, people can not trust that the fiat currency supported by the government can maintain its value, and traditionally seek an alternative, such as gold. I believe that bitcoin will fill this need in the future.

Consumer payment companies, such as Visa, Mastercard, PayPal and Alipay, are working to digitize money to eliminate corruption and improve overall financial inclusion. But they too depend on the stability of the underlying fiat currency. As bitcoin emerges as an alternative to unstable fiat currencies, I believe you'll be able to make a bitcoin credit card transaction just like you can today in dollars, euros, yen and other currencies.

Bitcoin allows secure and independent transactions between two unknown parts, the bar required to function as a payment system. Bitcoin is decentralized and open-source, allowing you to adapt to the needs of use in an organic way.

However, bearish opinions on bitcoins are rarely at odds with these design features. They typically focus on current limits, arguing that bitcoin will never reach the required level of stability, transaction capacity, security, ubiquity of merchants' acceptance, government blessing and trust as a payment system and alternative currency.

Slowly but surely, however, bitcoin is facing these limitations. Some examples:

Stability: The launch in December 2017 of bitcoin futures on CBOE and CME allows the short selling of bitcoins, essential to reduce long-term volatility.

Capacity: A statistic often cited by bitcoin bears: the bitcoin network processes only seven transactions per second, while the Visa network, for example, makes about 65,000. Thus, bitcoin can not be used to make payment transactions day by day, because the system can not manage the volume. This is currently true, but keep an eye on the nascent but promising initiative of the Lightning network, currently in test mode. If successful, bitcoin processing capacity would go to thousands of transactions per second, making the system far more profitable to make payments.

Safety: Perhaps the biggest Achilles heel of bitcoin is safety. Not security of the network itself. Rather, by securely storing the cryptocurrency so that it can be easily accessed while it is safe from hackers. It is difficult, therefore, the recent high profile crypts (for example, Coincheck, Coinrail).

However, progress has been made: dozens of custom-designed offline hardware portfolios to allow people to securely (and anonymously) store cryptocurrencies are available on Amazon for less than $ 100. At the start of this & # 39; year, Noble Bitcoin has launched a fully secured cryptocurrency deposit service, using a warehouse located in Texas that already houses gold, silver and platinum.

Merchant acceptance: Dozens of bitcoin merchant processing services, which allow traders to take bitcoins, already exist (BitPay, BitPOS, Coinbase, etc.). While today is low, as consumer demand and comfort with the system grow, merchants' acceptance will naturally follow.

Government blessing: Despite the theoretical threat posed to legal currencies (such as limiting a government's ability to implement monetary policy), few countries openly prohibit bitcoin. Many of the major countries, including the United States, Japan, Australia and many others in Europe, are studying how to classify it appropriately: a commodity against currency and security. This classification, I believe, will establish the regulatory and legal frameworks for cryptocurrencies, which will therefore allow secondary services, such as insurance, that help build consumer confidence.

While the price of bitcoin is having a tough 2018, silently, in the background, the bitcoin system is making steady progress to become a viable and universal alternative currency.

Ellis is a partner and senior equity analyst at MoffettNathanson LLC, which covers payments, processors and IT services. Email it to reports@wsj.com.

NO: Speculators can use them, but not the average consumer

By Tim Swanson

Bitcoin can become a dominant currency?

How could we measure the cryptocurrency domain? Many vocal music enthusiasts emphasize their hypnotic price action.

However, the total notional valuation of bitcoins and other cryptocurrencies is suspect because the value (measured in US dollars) is in no way correlated or attributable to a value determined by utility.

In other words: the price is not related to its use.

While they will probably continue to find their place in portfolios of wealthy speculators and investors, the current cryptocurrency culture like bitcoin is not designed to meet usability expectations for the average consumer. And this is on purpose.

Bitcoin was trying to solve a problem in allowing unidentified participants to send "electronic money" to other unidentified participants on a payment network that did not provide insurance, customer support or remedies. But most consumers who could potentially get cryptocurrencies live in an environment in which the identities of the participants are known and where legal recourse is expected. As a result, cryptocurrencies do not really solve an existential problem in their life.

A recent analysis of Chainalysis, which aggregated the payment activities of the 17 largest payment providers, found that the bitcoin blockchain processed approximately $ 70 million in payments for the month of June. A note from Morgan Stanley last summer found that the dealers are practically nil.

In an original WSJ documentary, market journalist Steven Russolillo ventures into Japan and Hong Kong to explore the cryptocurrency universe. His mission: to create WSJCoin, a virtual token for the newspaper industry. Image: Crystal Tai. Video: Clément Bürge

In practice, since most coin holders typically accumulate coins as speculators, it probably does not matter if the merchants' support for coin payments will grow in the future. These speculators generally already have access to other forms of payment they use instead.

While many supporters are eager to claim that bitcoin users may be their own sovereign bank, in practice most users deposit their coins in a trustworthy broker such as a stock exchange. According to Chainalysis, last year more than 80% of blockchain transactions like bitcoin used a third-party service.

This means that most of the coins are now housed in centralized locations, exchanges of coins and custody portfolios, where the private key for coin control is managed by a trusted third party, rather than physically distributed over the entire base of users. Because of these large quantities of concentrated coins, until today, only a handful of the largest exchanges and cryptocurrency portfolios have been compromised, some more than once. And the victims generally have no appeal.

Many bitcoin enthusiasts also claim that bitcoin can allow secure and independent transactions. But bitcoin has been around for almost 10 years and cryptocurrency sees even less daily activities than Venmo, Square Cash, WeChat Pay and other mobile payment platforms that are neither open source nor decentralized.

As a result, in recent years several vocal promoters have attempted to transform cryptocurrencies that promote storytelling like bitcoin as the way in which traditionally has gold. But this is a revisionist story. If functioning as an electronic form of gold – not an electronic form of money – was the original goal, the design of cryptocurrencies would have allowed a supply of elastic money. But at the moment, there is a fixed amount of bitcoins that can be created.

And the main prices we saw last year? A couple of research notes, including those from

JP Morgan

and Citi, estimated that less than $ 10 billion of real investor money has actually moved into all cryptocurrencies last year. Since then, retail investors have probably been excluded, so the price declines after the price bubble peak in December and January.

The Federal Reserve estimates that, in total, all payment, clearing and settlement systems in the US process are around 600 million transactions a day (valued at around $ 12.6 trillion). Bitcoin confirms about 300,000 transactions a day, whose aggregate value is questionable and a matter of debate because it can be difficult to break down the data.

Another challenge is that cryptocurrency trade supports a form of price discovery for a virtual currency that is typically measured by regulated sovereign currencies. This is potentially problematic because futures contracts for bitcoins in the United States are regulated in dollars, instead of delivering the underlying bitcoin. Establishing a contract in a professional market against a price index built upon and derived from an almost regulated retail market is an open invitation to all kinds of cheating.

The Securities and Exchange Commission continually underlines that this chronic lack of transparency and surveillance does not protect investors. That's why there are not any bitcoin ETFs yet.

As measured in real money, coins bubbles will probably be reflected and deflate in the next few years, but cryptocurrencies like bitcoin are unlikely to become the dominant form of payments for traditional users.

Mr. Swanson is founder and director of research at Post Oak Labs. Send him an email to reports@wsj.com.

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