Australian Central Bank Says Bitcoin “Fascinating” But Not Useful as Money

An executive from the Reserve Bank of Australia admits that Bitcoin's technology is promising, but the environment is too risky to make the cryptocurrency practical as a form of money.

Although cryptocurrencies have proven that it’s possible to have a decentralized monetary system away from the purview of central banks, the Reserve Bank of Australia disagrees that Bitcoin can function as money, at least for now.

“Indeed, even if one is quite skeptical of whether Bitcoin will have a significant role in the economy in the future, I think it is hard to avoid some admiration for its design,” said Tony Richards, head of payments policy at the RBA.

Naturally, the skepticism doesn’t come out of the blue. As Richards said in his speech to Australian Business Economists, there’s a lot of risk involved when trading digital coins.

Going further on this point, he said that “you are taking on a lot of risk with no recourse if things go wrong.” We’ve seen this happen when funds were stolen from wallets or in the Parity hack, when over $100 million in Ether was frozen for the foreseeable future because of a bug.

“These risks acknowledged, cryptocurrencies and distributed ledgers are fascinating developments both from a payments and a broader economic perspective. There have been a lot of cryptocurrency hacks and there are a lot of risks there. With Bitcoin, the only regulation to date has been AML. There hasn’t been any regulation in any country, that I’m aware of, that speaks to the question of investor protection,” Richards added.

The problem that Richards speaks about is very difficult to address, as Bitcoin’s own infrastructure does not permit a mechanism for protecting investors. Cryptocurrencies usually follow the “be your own bank” model, which almost always means that losses don’t get covered.

The only way that investor protection could theoretically be implemented would be at the exchange level, where the organization would not confirm transactions onto the Bitcoin blockchain immediately and instead take steps to ensure that this wasn’t the result of some breach.

According to an interview we had with Paul Puey, CEO of Edge, we may see exchanges and hosted wallets regulated like banks in the future as a result of these concerns.