Federal Reserve Bank sees big innovation in Bitcoin

_{Image source: images.google.com}

The Federal Reserve Bank of St. Louis, one of 12 regional Federal Reserves that make up the US Federal Reserve, has published a study on how Bitcoin fits into the current monetary system and whether it makes sense for central banks To spend cryptocurrency.

The Federal Reserve of St. Louis has divided actors involved in "money" into various dimensions. Bitcoin is in the "dimensions" virtual, decentralized and competitive.

All together with no surprises, if you have ever dealt with the subject of Bitcoin. Logically, bitcoin is not physical, has no central authority that outputs bitcoin, and is not monopolized, but can be gemined by anyone.

_{Image source: research.stlouisfed.org}

The Federal Reserve of St. Louis emphasizes that the Bitcoin system is an innovative invention that has the potential to revolutionize the current way currencies and the financial system work:

"However, we would like to emphasize that decentralized management of ownership of digital assets is a fundamental innovation. It has the potential to disrupt the current payment infrastructure and the financial system. In general, it could affect all businesses and government agencies that are involved in recordkeeping."

Like mining gold, Bitcoin mining is also exposed to miner competition. Everybody basically has the opportunity to participate in the process:

"Furthermore, as with gold, the creation of new Bitcoin units is competitive. Anyone can engage in the creation of new Bitcoin units by downloading the respective software and contributing to the system"
A central bank-based cryptocurrency

Right at the beginning of this section, the study indicates that each form of money has its advantages and disadvantages, and therefore several co-exist side by side:

"Each form of money has its benefits and drawbacks. This is why many forms of money coexist."

In particular, the study indicates that cash has significant benefits. So it is anonymous and subject to no permission. There is also no record of cash flow. Since it is physical, it can not be technically attacked (eg by hackers).

Nevertheless, the study believes that cash could soon end. The bank believes that cryptocurrencies are a real alternative to cash and will replace cash in the long term when problems such as scalability, high fees and acceptance are resolved. In particular, it calls the Bitcoin Lightning Network as one of the possible solutions to these problems.

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