What makes Bitcoin superior to fiat money

Better alternatives: Bitcoin is threatened with being replaced

Bitcoin was worth almost $ 20,000 to buyers in mid-December. It was the temporary end of a rapid growth phase. In early 2017, buyers were paying just over $ 1,000 per "BTC". However, the rise was followed by a rapid fall. A month and a half later, it was down two-thirds of its value and below the $ 7,000 mark. After a brief recovery period, he's been hovering around $ 10,000 for two weeks.

Whether you see this as a halving of the value, or as a tenfold increase in the year-on-year comparison, is probably in the eye of the beholder. In any case, Bitcoin has not only made it into the headlines, but has also increasingly become a political issue. Many see it as the future of money. A claim that he will probably not meet, says Philipp Sandner, Head of the Blockchain Center at the Frankfurt School of Finance and Management, in an interview with STANDARD.

Dream of quick fortune drove course up

He sees a mixture of hype and the resulting reporting as the main reason for the meteoric rise in Bitcoin's price last year. "In the past you often heard of people who have become multiple millionaires with a comparatively low investment. Many people do not want to miss out on such an opportunity and also invest, often without having a real understanding of the asset," says the expert.

This also coincides with various media reports. In the USA, for example, investor advocates reported that some newcomers would even go so far as to pledge their house to buy bitcoins. Financial authorities have repeatedly warned of the high risk associated with investing in crypto assets.

Sandner sees "regulatory concerns" among investors as the main cause of the subsequent nosedive. In several large states there were indications of possible strict restrictions or even bans on trading Bitcoins. The uncertainty drove many investors out of the market, and the resulting fall in prices ultimately led to panic selling, which accelerated the decline.

Key currency with little real acceptance

The development has not harmed the status of Bitcoin as the "key currency" among the crypto currencies, at least for the time being. If you want to buy other digital money or turn it into fiat money, you often have to take the detour via Bitcoin. Accordingly, it still has by far the highest market capitalization among the "cryptos". With its symbolic power, it is also a point of reference for investors, which is why many other crypto currencies often rise or fall with its price, although technically they have little in common with it.

Anyone who wants to pay for goods or services in everyday life with Bitcoins will still only find very few acceptance points. Previous experiments have not always gone well either. Due to high transaction fees and the large fluctuations in exchange rates, the operators of the game distribution platform Steam decided at the end of 2017 not to accept any more Bitcoins in the future.

Alternatives are available

"It is questionable that we will use Bitcoin as a means of payment in the future," says Sandner. What speaks in favor of Bitcoin is that it has a very stable blockchain and enjoys a high level of trust. On the other hand, there is a "no longer up-to-date protocol, low scalability, low energy efficiency" and the sudden increase in value.

If Bitcoin were to completely expire one day, Sandner sees two alternatives with great potential that could take its place. The first is Ethereum, as its blockchain is not only suitable for processing simple transactions, but can also integrate business processes - for example smart contracts.

The expert also sees good future opportunities for Iota. "This concept offers a solution to the scaling problem and also promises to get by without transaction costs - even for very small amounts," says the expert. The latter is particularly interesting for automatically processed transactions between machines.

Whether the Bitcoin came to remain the top dog can therefore be questioned. In any case, according to Sandner, the technology that he brought with him will establish itself. He sees blockchain as a key technology for the next ten to twenty years.

Regulation: "Europe cannot afford failure"

How the digital money market develops will depend to a large extent on how countries deal with crypto money. Clear framework conditions should also help to stabilize the price of Bitcoin and Co., whose wild price development is also due to the fact that it is still a young and tends to be overheated market.

A symptom of this status quo is the appearance of new coins and tokens, of which there are now thousands. Many of them advertise with even revolutionary properties, but rather quickly disappear again into oblivion. "A regulation that will hopefully start soon will certainly reduce this high frequency," says Sandner.

He appeals to the legislature to exercise a sure instinct when developing the regulations for digital currencies and the blockchain. It is important to prevent fraud, but you also have to ensure a lot of freedom for innovation. "Europe cannot afford to fail here, otherwise we will be left behind by other countries and economic zones."

G20 summit could bring rules and regulations

Ultimately, the blockchain would offer a lot more possibilities than speculation with crypto currencies. However, an ecosystem of its own would develop here, with all the business models that are already known from the traditional financial market. But not only that, there are also numerous use cases in which financial processes play a role - from networked industry to the healthcare sector.

Individual states have already taken the first measures to regulate crypto currencies. At the international level, things could soon get serious. At the initiative of Germany and France, the topic is to be put on the agenda of the upcoming G20 summit in March. They also want to submit a draft regulation. US Treasury Secretary Steven Mnuchin has also publicly advocated the development of a set of rules. (Georg Pichler, 6.3.2018)