While many are optimistic about the disruption virtual currencies such as Bitcoin will have upon fiat currencies, new research from the SWIFT Institute says that will likely not the be the case.
According to the paper, “Virtual Currencies: Media of Exchange or Speculative Assets?” SWIFT used a “theoretical model to analyze the dynamic relationship of virtual currency with fiat currency”. They found through their research and analysis that bitcoin’s main purpose is as a speculative investment, rather than a medium of exchange.
Since the price of virtual currencies is not fixed like government-issued fiat currency and is dependent on demand, users interested in using it would raise the price, and then speculative investors would raise the price further.
While fixing the virtual currency to a fiat currency would alleviate this problem, it would not align with the decentralized and free-market principles that bitcoin and many cryptocurrencies were designed by.
That does not mean anyone has attempted to do this. Tether, allows users to obtain digital tokens pegged to fiat currencies, the US Dollar, the Euro, and soon the Japanese Yen. Thanks to the Omni protocol, Tether exists as a layer above the Bitcoin blockchain, meaning for