Cryptocurrencies Are Unlikely To Become A Ubiquitous Payment Method In Australia, Says Central Bank

News | June 21, 2019 By:

The Reserve Bank of Australia (RBA), the country’s central bank, said that despite the developments in cryptocurrencies, none are currently functioning as money in the local economy.

On Thursday, the RBA published a 5,800-word paper that examines why bitcoin is unlikely to become a ubiquitous payment method in Australia, and summarizes how subsequent cryptocurrencies have sought to address some of the shortcomings of bitcoin – such as its volatility and scalability problems.

According to the paper, some of the evolution in cryptocurrencies in recent years has been an attempt to address some of the key shortcomings that have prevented bitcoin from functioning as money. However, it remains the case that no cryptocurrencies currently function as money in Australia, or as widely used payment methods.

“Many continue to be a work in progress and they generally come at the cost of making a cryptocurrency more centralized, a feature that may not be attractive to crypto-libertarians and in any case makes them more similar to established payment systems,” the authors said. “Developments to date have also not added sufficiently to the overall reliability, functionality and credibility of cryptocurrencies to make them an attractive alternative to established payment systems for everyday payments for the population at large.”

The paper also said that cryptocurrencies face a trade-off known as the “scalability trilemma,” which claims that blockchain systems can, at most, have only two of the following three properties: decentralization, scalability and security.

“In practice, these trade-offs are incremental; increasing the scalability of a blockchain does not require it to become entirely centralized or insecure, but more centralized or less secure,” the authors said. “Even so, to increase throughput and not compromise on a cryptocurrency’s degree of decentralisation and/or security is a difficult task. These attributes are often decided early on in a cryptocurrency’s development; for a cryptocurrency to be a reliable store of value – volatility aside – security is paramount.”

The authors concluded by saying that as long as the Australian dollar continues to provide a reliable, low-inflation store of value, and the payments industry continues to work on the efficiency, functionality and resilience of the Australian payments system, it is difficult to envisage cryptocurrencies presenting a compelling proposition that would lead to their widespread use in Australia.