- Bitcoin and cryptos cannot replace fiat Currencies, Andrew Bailey explains
- The volatility of the asset class makes it nigh-impossible for them to be used in commerce
- While Cryptocurrencies won’t survive the test of time, digital payments are here to stay
- The BoE joins other countries to consider the option of launching a CBDC
According to Andrew Bailey, the Governor of Bank of England, there is no existing cryptocurrency that has a sustainable structure that guarantees it as a means of payment over the long term. He made his opinion known in an online forum hosted by the Davos-based World Economic Forum on Monday.
All Cryptocurrencies Are Billed for Failure
Speaking to the panel on Monday, Governor Andrew Bailey explained that due to their current structure, all Cryptocurrencies, including Bitcoin will not survive the test of time as technology advances. He said;
Have we landed on what I would call the design, governance, and arrangements for what I might call a lasting digital currency? No, I don't think we're there yet, honestly. I don't think cryptocurrencies as originally formulated are it
On the contrary, Bailey stated that the technology of digital payment is “here to stay.” But for the current cryptocurrencies, won’t be able to replace traditional fiat currencies just yet.
For them to be able to replace fiat, he believes that there has to be a lot of technological changes, including a safe and well-designed regulatory framework that focuses on the customers. In the end, many of the existing cryptos won’t survive, or at least not as they operate now.
One major criticism of Cryptocurrencies has been their lack of backing by physical assets like gold. Because of this, many Cryptocurrencies suffer from high volatility.
For example, Bitcoin, the number one crypto, rose to a high of $41,946 (more than 700 percent price rise from March 2020) in the first week of January and slumped by more than 25 percent to trade under $29,000 on January 22. Bitcoin currently trades around $31,700 dropping off more than 5 percent of its value in the last 24 hours.
While this quick rise and fall in price are common in the crypto space, very few real-world assets can pull off such volatility, and albeit infrequently. If every Cryptos are going to replace fiat currencies, the issue of volatility needs to be put behind the industry.
On the Flipside
- A research conducted by Wirex and Stellar suggests that crypto mass adoption is close, contradicting the opinion of the BoE Governor.
- The findings identify the growing real-world use cases for cryptocurrency as one of the major reasons why it would be possible.
- In addition, Crypto projects are highlighting consumer needs and soothing these pain points, thus, creating more products that everyday users demand.
Central Bank Digital Currencies (CBDC)
More than ever, countries are looking to launch a CBDC while trying to fully regulate the crypto space. The Bank of England is no exception. The BoE has joined the European Central Bank, China, Canada, the United States, Singapore, Uruguay, Thailand, and now India, to consider the option of a CBDC.
A CBDC will allow people to perform sterling transactions without involving banks. It would be comparable to what is being enjoyed on blockchains, however, the goal is to avoid the volatility that renders bitcoin impractical for commerce.
In addition, Governor Bailey explained that the appropriate level of privacy for digital currencies is going to be an extensively debated topic. In his opinion, this potentially underrated topic is a major challenge in setting up a digital asset.