Has the ECB suddenly decided to admit the obvious and tell the truth about Bitcoin?

That's what you might think with the headline of my article. But the reality is more nuanced. Make no mistake about the real intentions of the ECB, which continues to falsely denigrate Bitcoin at every opportunity. However, between the lines of yet another study denigrating Bitcoin, an ECB official is still hailing its revolutionary properties.

The quest for the Holy Grail of international payments is as old as international trade. Discovering THE solution to ensure immediate, cheap, universal, and secure payments. Spoiler, it's not about Bitcoin, conclude the two signatories of the study released by the European Central Bank (ECB) on the first day of August 2022.

This document would not “necessarily” express the position of the institution, assures the introductory disclaimer on the first page. The first author, Ulrich Bindseil, is still the ECB's Director General for Market Infrastructures and Payments. And he maintains a dialectic that does not deviate one iota from the central banker's hard ideological line.

Thus, the banking analysis rules that it is “unlikely that Bitcoin will be the Holy Grail of cross-border payments” and lists three main reasons:

• The underlying Proof-of-Work based consensus mechanism. One of the technological pillars of the decentralized network would be “inherently inefficient.” At least compared to centralized or semi-centralized systems such as central bank money and transfers between commercial bank accounts. This narrative always appears in all central bankers' publications: criticize Bitcoin and then put forward the supposed superiority of what central bankers propose.

• Bitcoin's supposed advantages in cross-border payments would only be “the result of regulatory loopholes, which will be closed, however, when authorities realize that these loopholes have significantly reduced the effectiveness of anti-money laundering and anti-terrorist financing regulations and have allowed Bitcoin to become the primary means of illicit payment globally.”

• Finally, Bitcoin would not even be suitable as a domestic payment system, as it remains “inherently unstable in terms of purchasing power,” with its price volatility disqualifying it as a unit of account and not offering the stability required for a means of payment.

In short, this traditionalist approach, worthy of the ECB, but also without many demonstrations, is articulated based on objective data and mathematical or network reasoning. That's it, that was for the thorns. At the ECB, we are not in the habit of doing a favor to cryptocurrencies. Because ideologically, they are descended from Bitcoin, the model of an alternative world without banks. But who says thorns, also say roses ...

The virtues of Bitcoin even appear in an ECB report aimed at denigrating it

In the 59 pages of this pseudo-investigation of the Holy Grail of cross-border payments, which praises the innovation promised by the CBDCs (always the same strategy with the ECB and the Fed...), the virtues of Bitcoin appear.

The ECB's Director General of Market Infrastructures and Payments diplomatically acknowledges that “the Bitcoin network has certain properties that would seem to make it potentially suitable to be the Holy Grail of cross-border payments”. Especially complemented by additional transactional layers of the Lightning Network to ensure greater speed and processing capacity. “Assuming they are effective,” the authors take pains to temper. We should not be too honest all the same ...

Among the three main properties, first appears the uniqueness of Bitcoin: a single system can be used as it is all over the world, with no other linkage required. “Cross-border payments in Bitcoin appear to be as efficient as domestic payments in Bitcoin, with no additional investment required,” the researchers point out, also explaining the fact that currency conversion takes place outside of Bitcoin, with each user remaining free and responsible.

The second property of Bitcoin that makes it look like the “Holy Grail of cross-border payments” is the absence of intermediaries. This disintermediation suggests a high potential for efficiency and prevents the risks associated with operational or financial failures of intermediaries.

Finally, the ECB official and his co-signer note that crypto asset providers have meanwhile developed relatively efficient services for converting national currencies into Bitcoin. “However, at the same time, no intermediaries are needed as long as a user has sufficient Bitcoin for payment services and the user is comfortable with accepting large fluctuations in value (and the resulting profits or losses),” the authors insist.

In Bitcoin We Trust Newsletter: Everything around Bitcoin, Blockchain, and the cryptocurrency market