Bitcoin vs. the Mobile Phone

Bitcoin (or cryptocurrencies in general) offers some advantages over traditional electronic means of payments such as credit or debit cards, but it faces challenges old and new. It is more than just a new thing that appeals to tech-savy millennials. It also provides anonymity of transactions and, at least from the sellers’ point of view, reduces intermediary costs and fees. In short, Bitcoin is cheap and easy to use — presenting a win-win situation for buyers and sellers.

A major challenge of Bitcoin, however, is that it is not as widely accepted as a means of exchange as the major currencies (e.g., the dollar, the euro, or the British pound). As a matter of fact, many merchants that accept bitcoins as a form of payment actually receive a major currency. What the merchants do behind the scenes is to take the bitcoins and immediately exchange them for a major currency on an online exchange market. 

Bitcoin still has a long way to go before becoming widely accepted. And mobile phones, which one would think to be an ally, are becoming a serious competitor because they now provide their own electronic means of payments, such as Google Pay, Android Pay, or Samsung Pay. An electronic payment can now be made by just putting a smartwatch next to a payment terminal. 

These developments present two challenges to Bitcoin. First, paying with a mobile phone or a smartwatch also brings to the user the feeling of using a new thing. Some of these payment technologies already offer loyalty rewards in form of cash back or discounts. Since Bitcoin is owned by no one, a program like this may be harder to implement. 

Second, the convenience of paying with Bitcoin is now matched by these other apps. The consumer can make a payment as easy as using Bitcoin, but without the need to leave the common currency network. This allows the consumer to avoid the exchange-rate risk between Bitcoin and a currency such as the dollar.

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Nicolás Cachanosky, PhD

Nicolás Cachanosky is an Assistant Professor of Economics at Metropolitan State University of Denver. With research interests in monetary economics and macroeconomics, much of his recent work has focused on incorporating aspects of financial duration into traditional business cycle models. He has published articles in scholarly journals, including the Quarterly Review of Economics and Finance, Review of Financial Economics, and Journal of Institutional Economics. He is co-editor of the journal Libertas: Segunda Época. His popular works have appeared in La Nación (Argentina), Infobae (Argentina), and Altavoz (Peru).

Cachanosky earned his M.S. and Ph.D. in Economics at Suffolk University, his M.A. in Economics and Political Sciences at Escuela Superior de Economía y Administración de Empresas, and his Licentiate in Economics at Pontificia Universidad Católica Argentina.