One of the 12 regional Reserve Banks that make up the United States’ central bank, the Federal Reserve Bank of St Louis, has recently done a research asking some of the most important questions raised about cryptocurrency today- and from the look of things, they might have got some genuine response.
The research searched into the control structure of different currencies and checked whether central banks will accept cryptocurrencies as a medium of payment.
Trying to determine if bitcoin which is one of the major cryptocurrencies can be categorized under commodity, cash or digital, the researchers came to the conclusion that bitcoin does not actually fit into these categories. From the study after several comparisons were made, the only answer they could reach is that bitcoin fits none of the categories. Bitcoin is a unique currency given that is has some traits of all three of the categories and also has its own individual features.
According to the research, “Bitcoin is the first virtual money for which ownership rights to the various monetary units are managed in a decentralized network. There is no central authority, no boss, and no management. And yet it still works.
The Bitcoin blockchain is the decentralized accounting system, and the so-called miners are the bookkeepers […] decentralized management of ownership of digital assets is a fundamental innovation. It has the potential to disrupt the current payment infrastructure and the financial system. In general, it could affect all businesses and government agencies that are involved in recordkeeping.”
Additionally, the researchers of the study went on to explain the known qualities that bitcoin have, before going on to debate on whether bank-issued cryptocurrency is even useful.
“The special feature of cryptocurrencies is that they combine the transactional advantages of virtual money with the systemic independence of decentralized transaction processing. Furthermore, as with gold, the creation of new Bitcoin units is competitive. Anyone can engage in the creation of new Bitcoin units by downloading the respective software and contributing to the system.
In practice, however, a few large miners dominate the mining process. The reason is that competition has become fierce and only large mining farms with highly specialized hardware and access to cheap electricity can still make a profit from mining.”