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If you thought Bitcoin will rapidly replace cash, think again, says Bitcoin Foundation executive director Llew Claasen.
High transaction fees and long confirmation times from the Blockchain will make it difficult to replace cash with the cryptocurrency, said Claasen, while speaking at a Startup Grind Cape Town event last Thursday.
“So you’re kind of looking at between 10 and 30 minutes before the transaction cannot be cancelled or reversed,” he pointed out.
In addition the Bitcoin network can only handle four transactions per second, versus seven on the Ethereum network and 25 000 on the Visa network.
There’s no way to stop Bitcoin and that’s not a bad thing, points out Llew Claasen
Claasen’s comments echo those by former SA entrepreneur Hannes van Rensburg, who in September at the same event questioned whether consumers can put cryptocurrencies to wider use (see this story here)
From digital cash to store of value
Perhaps it’s then ironic that Bitcoin isn’t ready to replace cash — as this was the initial intention behind the creation of Bitcoin.
“What it (Bitcoin) was initially created to do, is to create a version of electronic cash that enables you to transact between two people without the need for a trusted intermediary,” said Claasen, referring to the release of Bitcoin in 2009, following a white paper and code published by Satoshi Nakamoto.
Essentially the Bitcoin network allows anyone to transfer Bitcoin between one another without anyone else needing to verify the transaction. “Where we are now is that it is more like a digital commodity,” he added.
As the number of Bitcoins are limited at 21 million, said Claasen, the value will tend to increase over the long term.
Yet it appears Bitcoin has been looked upon as more of a quick short-term investment, than a long-term store of wealth, with everyone piling in to get a piece of the action.
It’s this that is driving the Bitcoin bubble, said Claasen as well as market manipulation (see this story here).
‘Market correction won’t be end of Bitcoin’
However, while he agrees that Bitcoin is in a bubble he stressed that any crash in the Bitcoin market — or what he refers to as a “correction” in the price — is necessary and won’t end Bitcoin. He pointed to the example of the dotcom crash.
“Yes we had a dotcom crash, but we didn’t stop using the internet,” he said.
“What happened is that there was this irrational exuberance on the back of what people thought the technology was going to do. The technology wasn’t ready for that, so there was no utility.
“What you had effectively is that startups ran out of money, they didn’t have revenue models, so you had this crash, but immediately after that we started building what you can see today on the internet.”
He pointed out that the smartest way to go about it is to buy Bitcoin and hold it, rather than try to buy and sell and make a quick buck. “There is enough data that exists that the best strategy is ‘buy and hold’”.
Featured image: Bitcoin Foundation executive director Llew Claasen (Insight Pictures)