Don’t expect to buy your morning coffee with bitcoin soon—though you can in a few places.
According to Morgan Stanley, the digital currency is a long way from being used as a means of payment in one’s day-to-day life, even if its astonishing price gains this year give it the impression that it’s the hottest thing around.
“The remarkable appreciation and increasing involvement of institutional money seems to be lending Bitcoin (and some other cryptocurrencies) a legitimacy of sorts and supporting the perception that it could become a widely adopted payments tool in the long run,” the investment bank wrote in a note to clients.
However, the perception is just that—perception. And while the decentralized nature of bitcoin /zigman2/quotes/31322028/realtime BTCUSD +0.03% does mean some benefit for payment systems, including improved security, there are a number of factors that Morgan Stanley expects will make it difficult for the cryptocurrency to compete with centralized payment systems, such as the credit cards offered by Visa Inc. /zigman2/quotes/203660239/composite V -1.83% and Mastercard Inc. /zigman2/quotes/207581792/composite MA -1.10%
“Centralized systems for consumer payments are highly efficient, with formidable cost advantages,” the firm wrote.
The networks that Visa and Mastercard use process, in aggregate, “more than 5,000 transactions per second with capacity to process volumes multiple times that number. Bitcoin in contrast takes 10 minutes to clear and settle a single transaction vs. Ethereum that takes 15 seconds.”
Furthermore, Visa and Mastercard are accepted at more than 44 million locations across the globe, per Morgan Stanley’s data, “with expectation for the acceptance network to grow exponentially over the next 5 years as proliferation of connected devices (mobile, Internet of Things, etc.) allows for payments functionality to be embedded at many new end points.”
While an increasing number of merchants accept bitcoin as payment—and there are rumors that tech giants like Amazon /zigman2/quotes/210331248/composite AMZN -3.31% or eBay Inc. /zigman2/quotes/204653455/composite EBAY -2.79% may eventually allow it—such vendors are far less common than the outlets that accept credit cards, and the higher transaction costs and wait times further reduce bitcoin’s popularity for this function.
From The Wall Street Journal: What You Can Buy With Bitcoin: A $10 Pizza for $76
Despite that, Morgan Stanley wrote that it saw “some value in decentralization,” referring to blockchain, the decentralized ledger technology that is the foundation to bitcoin and other cryptocurrencies.
“A decentralized system makes it challenging for participants to collude with one another in order to profit at the expense of others,” the firm wrote, adding that “a decentralized/distributed system would be harder to attack or manipulate given a much higher number of nodes than the typical centralized systems.”
Of course, many bitcoin advocates argue that while it can be used as a payment system—one whose utility will only improve with time—the asset’s true service is in being a store of value, akin to gold. This idea, too, has been heavily disputed by those who call the digital currency a fraud, a bubble, or worse—all calls that bitcoin has shrugged off this year. According to one analyst, who compared bitcoin’s price appreciation against other major vehicles for speculation in history, bitcoin amounts to the biggest bubble in history.