Despite its increased use and popularity in Singapore, Bitcoin has several characteristics that make it unsuitable for use as a transactional currency, say Hannah Yee-Fen Lim and Boh Wai Fong from NTU.
SINGAPORE: We see increasing interest in Bitcoin and other cryptocurrencies as the price of Bitcoin rallied and crashed, showing an almost ten-fold increase in price over a one-year period.
Bitcoin is to date the highest valued or most expensive cryptocurrency in the world having grown by 276 per cent in the last year alone, well ahead of others such as Ether used on the Ethereum network.
It peaked in April this year before crashing to almost half its value in June. Singapore investors, too, are keeping a sharp eye on Bitcoin and cryptocurrencies, with traditional institutions such as banks starting blockchain funds to give their high-net-worth investors the opportunity to invest in cryptocurrencies.
We even see traditional businesses like Kopitiam in Funan announcing that they will be accepting cryptocurrencies like Bitcoin and Ethereum. As of January, there were eight Bitcoin ATMs in Singapore, and about 51 businesses listed as accepting cryptocurrencies for payment, according to Statista.
BITCOIN AS A TRANSACTIONAL CURRENCY
Bitcoin, however, has several characteristics that make it unsuitable for use as a transactional currency.
The volatility of Bitcoin suggests that both consumers and merchants bear exchange-rate risk, which arises from the need to change fiat currency to Bitcoin.
For instance, in 2010 we saw the first ever commercial transaction using Bitcoin to purchase a pair of pizzas for 10,000 Bitcoins – what is said to equate to about US$40 then would cost almost US$400 million today.
The inefficiency of blockchain with transactions taking hours, even days, to be confirmed, and the use of proof of work in Bitcoin mining also results in excessive electricity use, leading to sustainability issues.