Top Firm Warns Against Seeing Bitcoin As Currency
As more authorities relent on the Bitcoin issue, the focus recently has shifted to the classification of Bitcoin. Is it a currency? A voucher? Or a payment system? According to Ernst and Young, what Bitcoins is not is a replacement for fiat currency. However, this may not detract hardcore Bitcoiners who believe that real currency as we know it is doomed to be taken over by digital currency, at least someday in the future.
Bitcoin Will Not Be ‘Real Money’
According to Roger Willis from Ernst and Young, the talk about Bitcoin replacing fiat money is a myth. Willis has been following Bitcoin closely since it was officially launched in 2009. He sees Bitcoin as having been developed for e-commerce and micro-transactions which does not make it a currency as we know it.
“Fiat currency is essentially currency the government decrees to be legal tender,” Willis says. “Bitcoin wasn’t really developed to be a replacement for fiat currency. But Willis also expressed his concern about Bitcoin’s other more pressing problems rather than its status as a currency or not. It may revolves around problems of speed and fraud control.
Double Spending Bitcoin
While the Bitcoin system was in part designed to ensure that it could not be defrauded due to the involvement of so may independent parties, the reality is that the lack of regulations around certain key Bitcoin aspects makes it open to fraud. The system checks and verifies transactions almost every 10 minutes to ensure that “double spending” is practically impossible.
However, as Willis points out there has to be several confirmation transactions (as many as 5 to 6) before it can be verified that double spending did not occur. Collectively about 40 to 50 minutes may pass in this regard. Some businesses are willing to take that risk. But as the Bitcoin system’s popularity grows, it is highly likely that many SMEs (small to medium-sized enterprises) cannot afford to bypass the ‘checks and balances’ that are in place or being proposed for the future.
It may not always be “make or break” issue for business’s with a minority of payments in Bitcoins and with otherwise inexpensive stock. But the surge in Bitcoin users in just the past two months can change the ball game for those SME’s that have been accepting Bitcoin payments. Essentially these vendors may be putting their necks on the chopping block by only being able to verify that a transaction did not involve double spending some one hour after the customers leaves the store.
Business Policing Bitcoins
Ernst and Young claims to have a “balanced view” on Bitcoin and acknowledges some of the strengths of the digital currency. However, they also believe that the weaknesses in its system could pose a problem in terms of international money laundering, the anonymity of users and lack of regulation by a central authority.
It does raise the specter for business’s dealing in Bitcoin. The lack of a central authority means that many of the checks and balances that govern financial institutions falls on the shoulders of business’s dealing in Bitcoins. In other words these business’s now have to function, at least in part, as financial institutions of sorts.
Unless Bitcoin business’s tow the line, they may be facing serious penalties which can make it less feasible for them to accept Bitcoin payments by clients. The irony is that the pressure is mounting on business’s to comply with currency laws when handling Bitcoin yet the digital currency does not as yet have currency status by the authorities.