"Bitcoin is not a virtual currency"

As the Bundesbank sees it, Bitcoin is not a virtual currency but a crypto token. What is it that distinguishes crypto tokens from traditional currencies? This was what ZDF journalist Frank Bethmann and Dirk Schrade, Bundesbank expert in the area of payments, spoke about in a panel discussion in Frankfurt am Main. In front of an audience of around 80 guests, Mr Bethmann and Mr Schrade began by defining the term Bitcoin – or comparable alternatives. "Bitcoin is not a virtual currency," Mr Schrade said. Bitcoin does not fulfil the typical functions of a currency, nor is it part of the national monetary system, he noted, adding it is also misleading to describe Bitcoin as digital money. For that reason, the Bundesbank recommends using the term 'crypto token'.

Bundesbank talks about crypto tokens

There are 1,500 different types of crypto tokens currently in existence worldwide. "This fact alone is enough to give one pause for thought about the trustworthiness and reliability of these tokens," Mr Schrade said. "The exciting thing about money, after all, is that it has to do with trustworthiness and stability and consistently and repeatedly upholding and ensuring these aspects," he added. This is a key task of the Bundesbank. Nevertheless, he agreed with Mr Bethmann, who referred to the Bitcoin as "a very exciting idea", especially with regard to the blockchain technology behind it, "a decentralised database listing all Bitcoin transactions, which is difficult to hack and which is therefore deemed to be very secure," Mr Bethmann went on to say.

Dirk Schrade in dialogue with Frank Bethmann ©Alexandra Lechner
Dirk Schrade in dialogue with Frank Bethman
It is still not known who actually invented the Bitcoin. The inventor or inventors hide behind the pseudonym "Satoshi Nakamoto". "I personally would like to know, for example, on what hopes and ideas the Bitcoin was founded and whether these have been fulfilled," Mr Schrade wondered. Even though the Bundesbank warns against the dangers of acquiring Bitcoin as a vehicle for investment and speculation, it does not advocate a general ban. "On the contrary, we are obliged to address and deal with this issue," Mr Schrade said. For example, the Bundesbank, together with Deutsche Börse, has developed a prototype for settling securities transactions that is based on blockchain technology.

The Bundesbank is also involved in projects which aim to speed up payment transactions, for example. While it used to take around five days for a credit transfer to be credited to the recipient's account, such transactions now only take one day, Mr Schrade added. Instant payment solutions are set to reduce this time period to just a matter of seconds by the end of this year. "Interestingly enough, Bitcoin also crops up in this discussion," he noted, as it is often mistakenly associated with rapid credit transfers. In actual fact, the system is relatively sluggish. "In addition to this, a credit transfer in euro consumes about one watt of energy. Bitcoin, on the other hand, uses up just over 450 kilowatt hours of electricity," Mr Schrade explained. That is more than the average four-person household in Germany consumes in a month. Looking at the bigger picture, that is why Mr Schrade does not believe that blockchain technology will solve all problems.

Cash is not a museum piece

"Technologies are developing rapidly," Mr Schrade said. The Bundesbank would be well advised to monitor such developments closely. Contactless payments, for instance, are an issue that will become increasingly important in the future. Conversely, this does not mean, however, that cash is ultimately going to become a museum piece. Even though cash, according to the Bundesbank's latest research, is becoming less significant, it still plays a very important role as a means of payment. "An overwhelming majority of the general public is against abolishing cash," Mr Schrade said.