The cryptocurrency community has always considered the effectiveness of digital assets to be its most effective feature. This concept was recently discussed by a major bank official who pointed to the industry’s speculative parameter.
Peter Zimmerman, a senior economist at the Bank of England [ BoE ], claimed that the main obstacles that affect crypto adoption are regulatory uncertainties.
The bank official claimed that the indecision surrounding cryptocurrencies had undermined their effectiveness in acting as a means of payment. Zimmerman published a paper entitled “Blockchain structure and cryptocurrency prices” in which he identified specific features that hindered the growth of virtual assets.
An excerpt from his working paper reads:
“Limited settlement space creates competition between users of the currency, so speculative activity can crowd out monetary usage. Speculation congests the blockchain, reducing the moneyness of cryptocurrency, and impacting its price. The technology behind cryptocurrency may make it superior to other forms of money as a form of payment.”
In fact, according to the economist, Bitcoin was influenced by the label of “digital gold.” The tag had a negative effect because many wanted to HODL it in hopes that it would increase its value later. That feeling goes back to December 2017, when a lot of people suddenly became very wealthy after selling their long-held BTC.
Although Bitcoin proponents have stated that more people should HODL their assets, Zimmerman believed the opposite. He believed HODLing was one of the main reasons that Bitcoin would never become an established payment method. He claimed HODLing was one of the main reasons that Bitcoin would never become an established payment method.
Zimmerman added that if the speculative features of cryptocurrencies could be moved off distributed ledgers, it would give it a real positive boost. He proposed a system where fiat settled derivatives or layer 2 protocols could change the payment game. Layer 2 solutions such as the Lightning Network have already been used on network systems and many hope that it will spread soon.
Zimmerman added that if cryptocurrencies ‘ speculative features could be taken off distributed ledgers it would give it a real positive boost. He suggested a system where fiat settled derivatives or protocols on layer 2 could change the game of payments. Layer 2 solutions like the Lightning Network have already been used on network systems and many expect it will expand in the near future.
The comments made by Peter Zimmerman is a step in the right direction for the digital asset industry. Twenty twenty was supposed to be the year which would increase the number of institutions entering the decentralized economy. A major establishment like the Bank of England now coming forth to improve that very economy is certainly a green light.
