Bitcoin, as a form or system of payment, could assume an outsized role in a collapsing civilization, Michael Lee and Antoine Martin, economists in the New York Federal Reserve Bank’s Money and Payment Studies unit, suggested in a recent blog post on the New York Fed’s website.
One question the pair addressed was: Are cryptocurrencies the future of money? “It will ultimately depend on how well they compete with other, already established payment methods – cash, checks, debit and credit cards, PayPal, and others,” said the economists. “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.” What they left unsaid was… at least not yet. Does Venezuela ring a bell?
They also noted that the trust-proofing provided by cryptocurrencies comes at the expense of a key feature of a payment method: convenience. “If we lived in a dystopian world without trust, bitcoin might dominate existing payment methods,” said the economists. “But in this world, where people do tend to trust financial institutions to handle payments and central banks to maintain the value of money, it seems unlikely that bitcoin could ever be as convenient as existing payment means.”
Scalability is another issue for a payment system. “The process of picking random validators takes time, is expensive, and consumes tremendous amounts of energy,” the pair pointed out. That being said, the Fed officials conceded that Bitcoin and other cryptocurrencies are trying to improve scalability and convenience, “so perhaps in the future one of these cryptocurrencies could realistically compete with current payment methods. But, 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.”