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Will Bitcoin doom Western Union? -

Will Bitcoin doom Western Union?

Bitcoin is not a currency. Here’s why.

Bitcoins vs Euro

The first chart is a currency (EUR) price chart in USD (180 days), and the second a bitcoin market price chart in USD (180 days). The reason why they’re not side-by-side is an important one: the y-axis of both charts is significantly different. Whereas the EUR-USD chart starts on 1.29 and goes through 1.37, the Bitcoin-USD chart starts on 100 and goes to 1200. That’s a lot of volatility.

Volatility kills currencies. Just ask Germany (1920s), Brazil (1980s), Indonesia (1990s) among others who have been through severe currency crises. If I don’t know for sure that my money today will be worth roughly the same in a month, I’ll make sure to trade that money for a stable asset (be it another currency or some asset I perceive as less volatile). Until Bitcoin’s value stabilizes, the discussion about its value as currency is ridiculous.

Natural Gas PriceYou can make an argument that Bitcoin is a commodity, and in fact commodities can be equally volatile (see chart on the left) and that hasn’t prevented us from seeing them as investment opportunities.

But there are 2 things about Bitcoin that sets it apart from any commodity:

  1. Cost-efficient transaction – I can send bitcoins to the other side of the world with no hassle, no middlemen, and low transaction fees.
  2. Anonymity – I don’t have to associate my real-life identity to a transaction.

And that, to me, sounds more like Western Union than commodities or currencies. Bitcoin is a vehicle, and a fairly efficient one, for transactions. I’ve heard so many horror stories about Western Union (you send me the money, and I’ll send you the product, money is sent, product never comes) that I could see Bitcoin taking over this business entirely. Let’s be honest, Western Union is neither as cost-efficient (fees are pretty steep), nor as anonymous (I know the origin and destination of the money, just not necessarily who is sending it) as Bitcoin, and Bitcoin can fix the fraud issue with third-party mediation. Also, because these are spot transactions, volatility is not an issue because I can trade back Bitcoins for currency almost instantaneously.

Of course, anonymity is also why Bitcoin can be so efficient at money laundering. I believe governments will eventually regulate these operations to prevent money laundering, and I think that’s a good thing for the long-term value of Bitcoin. If Bitcoin can establish itself as a reliable, cost-efficient vehicle for transactions (and kill Western Union in the process), that would be huge.

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