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Can Bitcoin Be Both a Payment Settlement Network & Store of Value?

Reading Time: 2 minutes by on November 1, 2016 Bitcoin, Commentary, News
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A debate on Satoshi Nakamoto’s original vision on the Bitcoin network has surfaced on various online bitcoin communities and social media platforms. Some experts argued that bitcoin was designed to operate as a settlement network while others firmly believe that bitcoin is meant to be a store of value.

Bitcoin enables anyone, anywhere at any time to send any amount of money with substantially lower costs. It is like digital cash in a sense that transactions are permanently settled almost immediately.

In comparison, on settlement networks like credit card networks and bank systems, a user sending a debit payment or a bank transaction to a recipient will have to first undergo a manual process in which humans verify and confirm the legitimacy of the payment.

In an e-commerce platform like Amazon, for instance, a user first makes a credit card payment to the merchant. While the credit card network will mark the payment as sent, Amazon will have to settle the payment with the network operator weeks after the initial payment was verified.

However, bitcoin allows merchants and users to accept fully verified and confirmed payments, that is permanently recorded on the public ledger.

The argument that has surfaced on various online bitcoin communities and social media platform is that Bitcoin was designed by Satoshi Nakamoto operate as a settlement network. Open Bazaar and OB1 co-founder Washington Sanchez recently stated that Bitcoin was clearly established as a settlement network.

Yet, many experts presented a counter argument stating that Bitcoin is, in fact, a digital cash network and should be considered as a store of value. Thus, users must not expect to handle small payments with the Bitcoin network.

On a paper published in June 2015, George Mason University research fellow Eli Dourado exploited this argument by looking into Bitcoin’s ability to function as a payment settlement network.

Dourado wrote that while Bitcoin was not established to operate as a settlement network initially, no factors are actually limiting the Bitcoin network from functioning as one.

“And of course, people will be able to use Bitcoin to buy coffee, if that’s really what they want to do. Once Bitcoin is the world’s reserve currency and settlement mechanism, there will be no reason that coffee shops would not accept it, just as there is little reason for them today not to accept cash. But buying coffee with Bitcoin is not what the system is set up for,” wrote Dourado.

BitPay CEO Stephen Pair presented a similar argument earlier this year in a four-part series entitled “Bitcoin as a settlement system,” in which he laid out various reasons as to why Bitcoin can work as a settlement system if it successfully operates as a payment system.

“Those that argue that Bitcoin should only be used for settlement are really saying that they don’t think it’s possible for a decentralized cryptocurrency to process a high volume of transactions. Talented developers and engineers will prove them wrong on that point,” Pair noted.

Thus, as Bitcoin comes closer to becoming an international and mainstream currency, Bitcoin users and developers must focus on the development of various scaling technologies such as Lightning and SegWit to cautiously transform Bitcoin into a settlement network for a larger userbase.

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