Bitcoin and cryptocurrencies are often derided for their inadequacies compared to the giant traditional payment systems Visa, Mastercard, and PayPal, but an eventual challenge from bitcoin and crypto to the incumbents is not impossible, according to one tech analyst.
The bitcoin price, which peaked at near $20,000 in December 2017 and has been falling steadily since, is rarely considered related to bitcoin’s use as a mainstream means of payment and has risen over the last few years as a store of value, with speculators hoping to cash in on future price rises.
But as the bitcoin network and the cryptocurrency user experience improves, the threat bitcoin poses to traditional payment networks should not be ignored, MoffettNathanson analyst Lisa Ellis wrote in a note to clients.
“Why would I ever buy coffee with bitcoin?” Ellis said, first reported by financial newswire Bloomberg. But it could eventually happen, “as ludicrous as it may sound.”
In the developed world there is currently little benefit to accepting bitcoin or other cryptocurrencies over traditional forms of payment.
The networks that Visa and Mastercard use process thousands of transactions per second, with the capacity to process far more. In comparison, the bitcoin network takes around 10 minutes to confirm a single transaction while ethereum needs some 15 seconds.
In countries like Venezula, there is though already evidence of bitcoin and other cryptocurrencies being used where traditional payment networks have failed.
And improvements are being made, with bitcoin proponents pointing to the lightning network, designed to speed up and reduce costs of bitcoin transactions, as a possible catalyst for payment adoption.
The threat of bitcoin and crypto to traditional payments comes also from their “freedom of money” philosophy, according to Ellis.
“Cryptocurrency systems (e.g. bitcoin, ethereum, ripple) are potentially disruptive to private payment systems,” Ellis said. “Their core design characteristics—which are aimed at enabling ‘freedom of money’—are in direct contrast to the characteristics of most traditional, private payment systems.”
Meanwhile, banks and payments processors could offset this risk by adopting crypto and blockchain technologies, Ellis advised. U.S. bank J.P. Morgan last month made waves with the announcement of its private cryptocurrency JPM Coin, designed to rival Ripple’s XRP.
The bitcoin sector is currently trapped in a long-running bear market, with some $400 billion in value wiped from the world’s cryptocurrencies over the past 12 months as adoption stalls and banks put closely-watched plans to wade into bitcoin and cryptocurrencies on hold.
The likes of Twitter’s Jack Dorsey, Tesla’s Elon Musk, and Apple cofounder Steve Wozniak have, however, continued to praise bitcoin and its underlying technology, arguing the digital tokens are still in their early, formative days.
Others have suggested it will be Amazon’s Jeff Bezos who triggers the next bitcoin bull run if his mammoth online retailer begins accepting bitcoin or other cryptocurrencies.
Bitcoin’s epic 2017 bull run was largely put down to expectations institutional investment and big bank support for bitcoin would soon arrive. As 2018 dragged on and that investment failed to appear many investors and traders got cold feet, bailing out of their bitcoin and cryptocurrency positions.
This caused a bitter so-called crypto winter that has lead to many bitcoin, cryptocurrency and blockchain startups slashing jobs or shutting down already and a further turn for the worse could spell disaster for the burgeoning bitcoin sector.