Bravenewcoin: ‘Bottom line: Bitcoin bad, Blockchain better,’ claims Credit Suisse

While blockchain may be a solution searching for a problem, Credit Suisse states that Bitcoin will remain a niche payment network. The report names 13 barriers to mainstream bitcoin adoption, including two that many bitcoin proponents see as advantageous.

Transaction confirmation is too slow, states the report. While a 10 minute transaction time is widely touted as a positive attribute, transactions with lower fees can take 40 plus minutes on average: “Once recorded in the blockchain, transactions shouldn’t be considered settled until they are six blocks deep – another 60 minutes.”

The fees are another point of contention. While costs are hidden, they aren’t removed, the report claims. “The energy intensive and expensive transaction confirmation process (mining) is incentivized by the coin-reward which itself is funded by the issuance of new BTC. Recently halved from 25BTC to 12.5BTC per block, this raises the questions over future funding gaps, and energy inefficiency.”

To gain mainstream relevance, the report states that bitcoin would need to be capable of scale comparable to large payment processers. This would require a change to the protocol, and leads to the next barrier, “Internal conflict and inertia.”

Potential risks include bitcoin’s growing pains intensifying should the technology ‘cross the chasm,’ developer infighting and intransigence, internal conflict resulting in decision inertia, and bitcoin potentially failing to adapt to match user demands at the protocol level.

Volatility is also mentioned, reducing bitcoins utility as a value store and payment method, although its use as a medium for money-laundering and illicit capital flight is also highlighted.

Irrecoverability is also an issue: “It is a testament to the security of the network that should your private key be lost, the BTC associated with that address are fully unrecoverable. Equally, it is a barrier to widespread adoption.” This barrier goes hand in hand with Irreversibility, “There is no authority or mechanism for error correction.”

“In contrast,” states the report, the underlying blockchain is “a distributed database that holds a secure and immutable record of past transactions,” a “key differentiator in the ability to disrupt.”

“In our view, many barriers to mainstream adoption mean bitcoin doesn’t appear to present a disruptive threat,” states the report. Meanwhile, blockchain shared ledger technology, “may have features that could prove disruptive to multiple industries.”

The broadest conclusion is that blockchain is less relevant in sectors where there has already been significant investment and innovation. Consumer payments and pre-trade execution already takes place in milliseconds, the report argues, “it is hard to see how blockchain could materially improve this efficiency.”

However, in sectors where there is more friction, “blockchain has the potential to materially disrupt the landscape.” The buzz surrounding blockchain is compared to that surrounding the internet in the late 1980s.

Despite listing eight key challenges that have the potential to limit the utility, and therefore reduce adoption of blockchain systems, the report states that “a shared ledger has many advantages over classic centralized systems. Maintaining a distributed authoritative 'source of truth' rather than siloed ledgers has the potential to drastically reduce duplication, decrease transaction costs and improve transparency.”