South Koreas central bank has published a new working paper analyzing a dual-currency regime by pitting cryptocurrencies against traditional fiat currencies. Fiat currencies have been historically known to decrease continuously, the authors confirm, due to inflation and the factor of new money pumped in to the supply by the central bank, also known as quantitative easing. Bitcoin, in stark contrast, has a fixed supply which would imply a deflationary bias, the authors note. However, security or trust issues the decentralization of digital currency and the absence of insurance provided by governmental authorities may prevent digital currency from being used as a store of value. Instead, digital currency may be used as a medium of exchange dominantly.
Do you agree with this research result?
Well, using Bitcoin as a medium of exchange could be one use of it, but it surprises me that their conclusion for Bitcoin/digital currencies not being a store of value relies solely on their comment that there is a lack of insurance and the presence of some minor "trust issues" that don't really have any major affect on something like Bitcoin right now.
Bitcoin's deflationary bias definitely makes it a less attractive investing medium, but to say that digital currencies will end up as a primary medium of exchange may be a little disingenuous. I don't know, maybe their research is a lot better than my opinions.