Bitcoin no Sterling beater but digital ledger technology has potential for online finance - says Bank of England
The Bank of England (BoE) on Friday released two reports into the rise of crypto-currencies such as Bitcoin with one investigating its potential - and threat to Sterling - and the other studying its fraud and deflation risks.
The UK central bank’s report claimed that if digital currency Bitcoin, which is traded anonymously online for an increasingly wider range of goods and services, was to find widespread usage it could damage the value of Sterling. However, the report later added that this scenario was unlikely due to Bitcoin restricting its uptake to no more than 21 million coins.
Playing down the currency’s threat to the UK economy, the bank said that an estimated 13 million Bitcoins are in circulation worldwide with a mere 200,000 Brits using the currency regularly, accounting for around 0.3 per cent of the UK population. In contrast, every citizen is reliant upon Sterling in some way.
The first report concluded: “Digital currencies’ status as money and the distributed ledger technology used by them have potential to develop over time. Most digital currencies, at present, deploy fixed eventual money supplies.
“Usage of digital currencies is presently very low and, as currently designed, there are a variety of incentive problems that are likely to prevent their widespread adoption in the long run. Digital currencies do not, at present, play a substantial role as money in society. But they may have the potential to come to exhibit at least some of the functions of money over time.”
Adding: “There is little incentive for the pricing of goods and services to change from traditional currencies unless these currencies were to suffer from a wholesale collapse in confidence.”
A second report investigated the currency’s stability and security, finding, like any financial system, inherent flaws which could be taken advantage of by crooks, in addition to various positives.
Similarly to the previous report, it was claimed that unless the crypto-currency gained any substantial worldwide usage, it could not cause any significant UK economic fluctuations.
Rather than Bitcoin itself, the report underlined the importance of the currency’s distributed ledger technology, going as far to say it has the potential to revolutionise the worldwide banking system.
It said: “The application of decentralised technology to this platform of digital information could have far-reaching implications, other industries whose products were digitised have been reshaped by new technology… the impact of the distributed ledger on the financial industry could be much wider than payments.
“The majority of financial assets - such as loans, bonds, stocks and derivatives - now exist only in electronic form, meaning that the financial system itself is already simply a set of digital records... This development could allow any type of financial asset, for example shares in a company, to be recorded on a distributed ledger.”
Although the BoE predicted that Bitcoin was unlikely to threaten Sterling, it could not deny that the currency is seeing wider user with a growing number of retailers looking into its use.
EBay payment firm Braintree, on Wednesday announced it is looking into implementing the digital currency payment system into its mobile app clients AirBnB and Uber.
As a subsidiary of eBay’s, if successful, the scheme may be rolled out across the online auction house’s services at a later date - although the firm have yet to confirm such a plan.