The ECB just recently updated its website to include their thoughts on Bitcoin.
Their conclusions were both encouraging and not so encouraging at the same time.
On the one hand they stated that there will not be a ban of bitcoin.
The exact wording can be read here:
"It is not the ECB’s responsibility to ban or regulate bitcoin or other cryptocurrencies. But, given the lack of consumer protection, it is important to exercise caution."
Good news, no ban coming from the ECB!
However, they did pour cold water on the notion that bitcoin is indeed a currency.
In fact they summed up their thoughts pretty well in one simple chart:
Ok, so bitcoin is not currently a currency, but guess what, that is ok!
Lets counter their reasoning why it is currently not a currency one by one.
1 - No one is backing it.
Yes that is true in the sense that no government or single entity is backing it, however, that is also one of its strongest selling points.
The fact no one country or entity controls it makes it incorruptible, it also protects against rampant inflation as it cannot be printed at will.
So yes, there is no central authority backing it, but that is a good thing.
There is a large network of people that are starting to use it and support it. As that network grows there will be plenty backing it.
2 - It is not widely accepted.
While this is true currently, it may not always be the case.
With the Lightning implementation expected to roll out later this year on bitcoin, there is a very real chance that transactions will take place almost instantaneously and with fees costing fractions of cents.
In that world it will be interesting to see if merchants start adopting it as a form of payment.
3 - Users are not protected.
This is an interesting statement.
On the one hand, if I am holding $100 in cash and I am robbed in the parking lot, who is there to protect me?
To me, this seems like pretty much the same thing.
Yes there are protections regarding banks and credit cards in the form of insurance, but that is also something exchanges could start offering as well.
There is no protection for users holding cash, should we not accept cash then either?
4 - It is too volatile.
This is probably the most reasonable reasoning of them all.
Yes the currency is volatile, in fact, it's extremely volatile.
So much so that no one wants to accept payment in it for fear that it's purchasing power could erode by 50% within a week.
However, I recently saw a chart of gold when it first started trading freely.
The volatility on it was actually very similar to what we see now with bitcoin.
Check it out:
(Source: https://steemit.com/bitcoin/@jrcornel/store-of-value)
The premise here is that the longer bitcoin exists and as it makes its way into more and more hands, much of that volatility will come out of the price.
Much the same way that gold has.
There is no guarantee that this will happen, but the logic makes sense.
All in all, the ECBs conclusions are mostly spot on, however, most of them won't be spot on forever.
I am just happy they are taking a wait and see approach, as opposed to banning something they don't fully understand the potential of just yet.
In that regard, I would say their commentary has been a win!
Stay informed my friends.
Follow me: @jrcornel