Since the advent of bitcoin, there has been an ongoing debate whether it should be termed as a commodity like gold or a transactional currency. To dive deeper, let’s analyze what the traits of a transactional currency are. Anything that wishes to replace fiat should be fast, secure, should have minimal to zero transactional costs. For most people, bitcoin checks all these boxes, but bitcoin still lags a number of points that can put it far behind in the race of becoming a transactional currency.
The volatility of bitcoin is one of the most prime issues that makes it more of an investment option rather than a currency. General masses and expert alike have been expecting the prices to rise instead of achieving stability. This instability has welcomed a lot of risk takers as retail investors to enter the crypto space but has pushed institutional investors away. Another aspect that puts bitcoin more out of the category of a currency is the time it takes for a transaction to complete. A currency used for transactions is expected to have speedy transactions while the 10 minutes block addition time puts a huge barrier in front of bitcoin in this regard. According to Zach Alam, the Chief blockchain consultant at onboard.one it is difficult that bitcoin becomes anything other than gold. He supported his case saying:
“It’s slow to send, at ~10 minutes to confirm – we can’t expect shoppers to wait that long before leaving a store with their products. There’s not enough throughput, at 7 transactions per second – it’s not feasibly possible for there to be widespread usage. There’s no way to recover lost or stolen coins, this might be fine for gold, or as a method to preserve wealth, but the majority won’t be able to live day to day with this risk.”
The centralized alternatives that handle digital transactions, like Mastercard and Visa are way ahead in this domain, who allow thousands of people to transact per second without any delays. Another issue with buying through bitcoin is making a return policy. If a customer wishes to return a product or ask for refunds should the refund be paid in cryptocurrency or in the equivalent fiat? When prices have fluctuated significantly this can cause a good bit of contention between customers and merchants. With a fiat-pegged stablecoin this is not an issue.
Countries are moving towards making their own blockchain based digital currencies backed by their native fiat, which also clearly explains the inclination towards stablecoins, and currencies that don’t disrupt their economic systems as a whole. If properly tax administered and regulated, stablecoins can answer all of the above concerns put forward by bitcoin. On the other hand, if looked at by perspective of gold, bitcoin clearly checks all the boxes and provides a perfect alternative. Comparing BTC and gold, Martin D. Weiss, founder of Weiss Ratings, stated:
Bitcoin does indeed have some characteristics that are akin to gold’s: Limited supply, robust security, as well as emphasis on being permissionless and censorship-resistant. But the differences are equally important. Bitcoin is digital, which means it’s free to store, easy to transfer, and, unlike virtually all other financial assets, carries no counterparty risk. This makes it a unique and ideal store of value. As its market cap grows and its price becomes more stable, it’s likely to become more popular as a safe haven.