• The Bank for International Settlements (BIS) has given Bitcoin a poor rating as it does not sufficiently fulfil its store of value function.
• Furthermore, the high volatility and the still complicated use of wallets and exchanges are criticized.

In its new report, BIS describes that although traditional payment systems have been greatly improved, there are still two major fundamental problems:

1. The majority of the world’s population (1.7 billion people) still does not have sufficient access to financial services.
2. Cross-border payments function inefficiently and are not designed for large masses.

The private and public sectors must therefore continue to look for innovative ways to improve payment options. According to the report, the so-called stable coins, whose value is pegged to a fiat currency such as the USD or the euro, are particularly interesting. The most prominent cryptocurrency in this area is Tether, whose value is pegged to the USD.

The report looks at the global impact of the introduction and further development of existing stablecoins and describes in detail what measures need to be taken to combat money laundering, cybercrime and consumer/investor and data protection. In addition, cryptocurrencies such as Bitcoin are analyzed.

Bitcoin has failed as a store of value

The 37-page analysis paper describes that cryptocurrencies are not a worthwhile alternative to investing one’s money securely in an asset. The following points of criticism are cited in particular:

• The volatility is still too high
• There are scaling restrictions so that a smooth processing of all transactions is not guaranteed at all times
• The use is difficult for newcomers and can lead to a loss of their own financial resources
• There is no single regulatory framework worldwide

Bitcoin is also associated with investors who finance illegal activities using BTC as a means of payment:

Thus, cryptoassets have served more as a highly speculative asset class for certain investors and those engaged in illicit activities rather than as a means to make payments.

Further explanations to the actual blockchain technology, which actually characterize crypto currencies, are not to be found. The rest of the report focuses on stablecoins and their requirements and impact on the complex financial ecosystem.

Stablecoins could be the means of payment of the future

According to the report, stablecoins offer some significant advantages over cryptocurrencies that are necessary to solve the problems described above. Stablecoins have a stable value because they are pegged to a fiat currency. Thus, there are no strong price fluctuations.

Through the worldwide cooperation of the largest financial institutions, an environment can be created that drives developments in all necessary areas. This includes a regulatory framework that spans the globe and clarifies all legal issues in sufficient detail.

Furthermore, the technical prerequisites must be created in order to guarantee sufficient network performance so that there is no congestion during payment processing, even with larger volumes. In addition, the costs must be reduced considerably, as these are significantly higher than those for transfers due to the use of cryptocurrencies.

In addition, the central banks should individually and jointly determine in dialogue to what extent the issue of digital currencies by central banks could represent a possibility of solving the problems of today’s and tomorrow’s financial world.

Prominent stablecoins of the cryptocurrency market

As already mentioned at the beginning, with a market capitalization of more than USD 4 billion, Tether is the best-known and most widely used stable coin. However, Tether is suspected of having deliberately manipulated the cryptocurrency market and especially Bitcoin’s price. A class action lawsuit is currently pending against Tether and Bitfinex, the outcome of which must still be awaited.

In addition to Tether, there are other stablecoins that are mainly used on well-known exchanges such as Binance, Bitfinex or Coinbase and have not yet found widespread use in our everyday lives. It therefore remains to be seen whether a stable coin will actually be the means of payment of the future.

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