News that Chicago Mercantile Exchange (CME) was to introduce a Bitcoin futures instrument was met with much gaiety among Crypto enthusiasts, heralding as they believe this does Bitcoin's ratification as a mainstream currency.
On the face of it, this is great news. However, as we know in matters of money, the devil is in the detail. CME operates in the Security & Commodity exchanges industry and digital currencies were established by the Commodities Futures Trading Commission (CFTC) as a class of commodities last year.
Nine years to the day, When Blockchain and Bitcoin were conceptualized in Satoshi Nakamoto's seminal paper, the latter was described as a peer-to-peer electronic cash to allow online payments to be sent directly from one party to another without going through a financial institution. Being classified as a commodity, akin to gold, not only defeats but betrays the founding purpose of Bitcoin. It's a most awry deviation from Bitcoin's realization of potential as a digital currency.
This is not an altogether surprising development. Bitcoin and the concept of Blockchain as a decentralized distributed digital ledger for that matter are still very much inchoate. Historically, there has always been resistance to new money – from bartering and bronze coins to banknotes and credit cards. To pierce through this resistance and supplant old money, new money must offer overwhelming advantages to an overwhelming majority. Bitcoin in its current iteration offers inadequate advantages to mount a serious sortie at replacing old money.
To speak as to what must happen for Bitcoin to replace money, we must characterize money. Money is defined simply as a medium of exchange within a community. As we overcame boundaries and connected with a broader community, what we describe as money has evolved and emerged to be known today as legal tender, deriving value only from being declared of value and being ascribed value by the government.
As we breach barriers to communication, we find ways to facilitate commerce through these channels of communication. Therefore, it was inevitable that we would create electronic money. But money which is borderless is nevertheless all kinds of unchartered territory! Desirable though it may be.
Despite the concept of electronic money being much older, it was never so practicable until the ingenious concept of distributed ledger was invented. Blockchain eliminates various risks such as lack of trust, falsification and double-spending. Yet, it does not, per se, make Bitcoin a viable challenger to the status quo.
Bitcoin does not address the biggest drawback of legal tender – unequal distribution of wealth. It is unable to scale for an evergrowing network and It is also no longer free to transact in Bitcoin for the same reason. The transaction costs have become unreasonable. Instead of paying the exorbitant fees to the bank, we're paying the miners.
There is a school of thought that an Altcoin may eventually overtake Bitcoin and secure itself as a frontrunner to replace fiat currency. Any currency with designs on competing with fiat money will endure a similar trial by ordeal.
Although Bitcoin is not significantly better than any Altcoin, the cachet of being first will allow Bitcoin to retain its dominance for the foreseeable future. Until such time Bitcoin, or an Altcoin, is able to overcome scalability shortcomings with an innovative consensus protocol and lend to an egalitarian global economy, they are not compelling enough to supplant legal tender and therefore, we shall remain in thrall to the whims of the governments we elect and the corporate plutocracy which dictates governance at large.
Bitcoin's future as a digital currency may be open to various questions but it is irrefutable that Blockchain is the infrangible foundation upon which the future of not only our economy but various other technologies will be established.