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Op-Ed: Bitcoin not much used as a payment alternative to cash

Bitcoin is not functioning much to make payments

A recent article in Fortune claims that bitcoin is turning from potentially replacing cash as a payments system to a commodity. One might add that it is a very speculative commodity.

The article notes that like gold, bitcoin is not used to buy goods usually as is fiat money. However, bitcoin is unlike gold in that its price is extremely volatile and it has no other uses as well such as in jewelry etc.

The volume of bitcoin transactions has risen for several years. Many of the transactions are traders buying and selling the coins. Often this is a result of the huge gains in price that cryptocurrencies had last year. It is mostly the result of speculation. It is not clear how many are buying the coins as an investment.

However, there are no doubt uses of the system to make payments for illegal activities and money laundering because the transactions are anonymous and do not involve a third party. North Korea appears to be trying to use bitcoin as a means of helping to finance itself and because it is banned from the mainstream financial system.

Bitcoin is still used by some for money transfers to some countries.

The problem of high user fees

As the volume of bitcoin transactions surged so did user transaction fees. From an average of $1.13 on October 1 last year, the fees rose to an astonishing $34.10 on average on December 23. This development caused a number of businesses to stop using bitcoin for payments. Steam the popular digital game distribution company was one among several to abandon the use of bitcoin for payments, as discussed in a recent Digital Journal article.

The problem has been solved, at least for now, with average costs on Thursday being just 20 cents. However, unless the price volatility eases perhaps there will not be a rise in companies accepting bitcoin as a means of payment. Bitcoin is also in competition with other coins such as Litecoin, and Bitcoin Cash for making payments. Both are faster and have very low transaction costs. Ripple and some others are developing payment systems that will help banks and other financial institutions make payments rather than replacing them.

Robinhood brokerage

Robinhood provides a platform for trading in securities free. The strategy seems to be that the free service will entice users into using Robinhood gold that allows trading after hours and other advantages but charges a monthly fee.

Next month Robinhood is said to be planning to allow trading in bitcoin and ethereum for free. Robin Hood already operates in five U.S. states trading securities. Robinhood says that it will allow users to track up to 16 different cryptocurrencies. We will just have to wait and see whether this is just hype or will become reality.

Robinhood has its own website. A review of the brokerage can be found here.

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