The Swedish Central Bank, Riksbanken, recently published a report called “Bitcoin is not money” in which they outlined reasons why Bitcoin can’t be considered a currency.
In a newly released report, the central bank of Sweden has come to the conclusion that Bitcoin is not a currency and they based the statement on four main reasons. But are they right? Let’s see what they said.
One of the main points the bank focused on was Bitcoin’s relatively small usage. During 2017, there was an average of 275,000 Bitcoin transactions every day. Bitcoin is considered chump change compared to the Swedish payment app Swish that handles 1 million payments per day and the international payment service SWIFT that handles $5 trillion dollars every day.
However, the number of Bitcoin transactions could potentially grow which would make this reason obsolete.
The next reason Riksbanken provided is that no central bank controls the flow of Bitcoin and that the average person defines a currency as a mean of payment issued by a government.
This too is also true, although, the fundamental idea behind cryptocurrencies is that they are decentralized and not connected to any government and it definitely doesn’t mean that Bitcoin is not a currency. The actual definition of a currency is a means of payment for which Bitcoin qualifies.
High transaction fees are another reason why Bitcoin will never be a currency according to the Swedish central bank, and this is a valid point. At the beginning of 2018, the transaction fees for Bitcoin peaked which made it useless to transfer smaller amounts let alone pay for everyday products.
Or as Gabriel Söderberg who worked on the report put it, “if you’re buying a coffee, would you want to pay more in transaction fees than you pay for the coffee? Probably not.
We agree that this is a valid concern but a lot of work is being done to lower the fees, especially through the Lightning Network. Also, there are other cryptocurrencies that have fewer fees and systems like LitePay for Litecoin which are working on limiting the fees.
According to Riksbanken, high volatility is the biggest reason why Bitcoin will never be considered a currency. The issue is that people who buy Bitcoin and then see it quickly rise in value will be reluctant to use it as a payment. Therefore most users will be stuck holding on to their cryptocurrencies as an investment rather than using them as a currency.
If it’s not a currency then what is Bitcoin?
You could still argue that Bitcoin is a currency since you can buy and pay for products and services with it which is the real definition of a currency. But right now it’s up to every country to determine their definition of Bitcoin, and we are expecting to see many different solutions to the situation over the next coming years.
For example, the United States government has already declared that Bitcoin is not a currency. The Securities and Exchange Commission (SEC) says that Bitcoin and other cryptocurrencies are securities, the Commodity Futures Trading Commission, however, says that Bitcoin should be treated as a commodity.