The headline caught my attention: EY: ‘Bitcoin has the potential to be a game-changer’. So did the subhead: Big Four accountant EY shares insights into the digital currency its says could be a ‘game changer’ EY is a British accounting firm.
How, I thought, can Bitcoin become a winner? It‘s a loser from the point of view of privacy. Paper money is much better. But Americans don’t use paper money. They don’t care about privacy. So, why buy Bitcoins as currency?
So, I kept reading.
Colin Pickard said Bitcoin could bring substantial benefits to the financial services industry by cutting down the costs of cross-border transactions.
Cross-border transactions are rare for individuals. The people who are big fans of Bitcoins – computer programmers and libertarians – don’t have much money. They are not big businesses. They do not export or import anything.
Then he added this:
He added, though, that unless governments start regulating it, the currency may never “take off”, as it still faces serious hurdles.
I see. Bitcoins need government regulation to work. This is intriguing. Surely, if Bitcoins ever are used for anything except as a huge digital tulip mania, they will get plenty of regulation.
This is not the case for Bitcoins made my libertarian programmers. In fact, it is the opposite of their case.
Bitcoins have high volatility. The market looks like a bubble.
Its dramatic swings in valuation and associations with criminal activity have seen it characterised as a bubble commodity unworthy of serious consideration.
Correct on both counts.
Then what is the case for Bitcoins as a currency? How about privacy?
Many illicit online traders favour Bitcoin as it the buyer’s identity is more difficult to trace than with card payments.
But this is a myth, we are told. “It is more transparent and traceable than real cash,” said Roger Willis of EY’s fraud team. He’s got that right!
How about price stability?
Bitcoin’s potential as a currency has also been questioned since there is an upper limit on how many can be generated, meaning that in contrast to real-world money, it has a deflationary bias. But Mr Pickard said he did not believe this was a barrier to wider adoption, since each Bitcoin can be divided an infinite number of times.
“It’s a complete change in concept. You have a cap [in the number of Bitcoins] but you can increase the number of subdivisions. Instead of, for example, getting rid of the penny farthing, you divide the unit.”
So, volatility is irrelevant, he says. You can have a currency that appreciates 100-to-one in a year. No problem! Then it can fall 30% in two days. No problem!
Has any currency in history done this? No.
Is there really privacy? No.
Nor would Bitcoin elude a fraud investigation, according to EY’s Matt Rees, who said that while a probe involving Bitcoin would be “very different” from one where traditional currency was used, that it would be technically possible.
Then the article ended.
The writer did not pursue any of this. She did not think this was relevant. She filed her article. That was that. On to the next story!
So, why is Bitcoins a game-changer? We are not told. What we are told is that Bitcoins are useful as cross-border exchanges, which the average person does not care about. Furthermore, Bitcoins are not very private, can be traced, are wildly volatile, and must be regulated by the government in order to be acceptable as currency.
If this is the case for Bitcoins, my criticisms of this digital tulip mania are still intact.