08 February 2016

Bitcoin to have 'profound' impact on trust-based markets - Wedbush analysts

30 May 2014  |  7323 views  |  0 bitcoins

Bitcoin may currently be going through an "adoption chasm" but the crypto-currency will have a profound societal effect, shaking up payments markets and other industries over the next few years, analysts from Wedbush Securities have predicted.

In a research note (PDF), analysts Gil Luria and Aaron Turner argue that after a rush of hype that saw bitcoin smash through the $1000 mark late last year, the currency slumped into a "trough of disillusionment" as regulatory worries in countries such as China and the Mt. Gox debacle knocked confidence.

However, some key numbers suggest that bitcoin is on the verge of a breakthrough: VC investments related to the currency have doubled in the last three months, while Blockchain.info and Coinbase now have more than three million wallets between them.

The note says that broader adoption is now one to three years away and that the scope for disruption is massive considering that 20% of US GDP is generated by industries whose main function is as a trusted third party.

The most obvious area in which bitcoin can flourish is in undercutting the $250 billion a year made in payment transaction fees. But Luria and Turner also think that the blockchain asset ledger and bitcoin protocol could challenge deposit fees, foreign exchange fees, escrow, trust management fees and collections fees.

Another potentially important role for bitcoin is in the emerging Internet of Things. The note argues that machine-to-machine communication will require a way for prioritising resources and allowing devices to transact.

Bitcoin is ideal for this because there is nothing to stop wallets being owned and operated by a thing. For example, payments could be used to reduce DDoS attacks and spam emails.

Luria and Turner are optimistic that three of the biggest brakes on bitcoin adoption - security, regulation and volatility - will be overcome.

They argue that emerging security tools mean that eventually bitcoin will not have to be held offline in cold storage. Meanwhile, within months there will be robust, secure, regulated and liquid exchanges in the US. These will both contribute to a steadying of prices.

Separately, a note (PDF) from the Montreal Economic Institute concludes that if bitcoin is to prosper it must have a clear legal status.

The note's author, David Descôteaux, argues that legislative steps should be taken to make sure that Canadian banks can do business with bitcoin-related firms. He also calls for clear tax rules, citing Germany as the model to be followed.

Comments: (0)

Comment on this story (membership required)
Log in to receive notifications when someone posts a comment

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board, sign up now.

Related blogs

Create a blog about this story (membership required)

Related stories

27 May, 2014
20 May, 2014
16 May, 2014
17 April, 2014
26 March, 2014
17 March, 2014
12 March, 2014
14 February, 2014
16 January, 2014
27 November, 2013

Top topics

Most viewed Most shared
Fintech rising: Resistance is futile, says...
11412 views comments | 51 tweets | 44 linkedin
Digital transformation driving earnings at...
9883 views comments | 47 tweets | 39 linkedin
Visa opens up to developers
8102 views comments | 23 tweets | 41 linkedin
ECB eyes up European P2P payments
7994 views comments | 29 tweets | 39 linkedin
It may take ten years, but blockchain tech...
6750 views comments | 21 tweets | 19 linkedin

Featured job

£100,000 basic, £180,000 OTE + Benefits

Find your next job