BitBeat: Boston Fed Sees Bitcoin Flaws But Cryptocurrency Potential

-In a deep-dive report, researchers at the Federal Reserve of Boston laid out a mostly positive outlook for cryptocurrency technology, though not so much for bitcoin as it is currently designed.
In a report released earlier this month but which only caught the bitcoin community’s eyes these past two days, the Boston Fed concludes that ‘the lasting legacy of Bitcoin most likely lies in the technological advances made possible by its protocol for computation and communication.’
Authors J. Christina Wang, a senior economist in the Boston Fed’s research department, and Harvard University economist Stephanie Lo note that this decentralized technology could disrupt a current bank-centric payment system that’s ‘fragmented’ and ‘inefficient.’
They join St. Louis Fed Chief Economist David Andalfatto, who put out a report on cryptocurrency earlier this year, in specifically acknowledging bitcoin competitor Ripple as a contender for this role. Describing that startup’s network as ‘essentially a protocol that allows disparate systems to communicate in order to transfer funds and make payments,’ the report says Ripple shows that ‘the development of new technologies for making payments does not need to be accompanied by a new financial claim’ – in other words, a new digital currency to compete with traditional currencies. (Ripple has its own native currency, called XRP, but not every transaction requires it and end users typically don’t trade in it, with most transfers passing only momentarily through XRP. The financial service providers that serve as Ripple gateways can distribute and receive payments in sovereign fiat currencies.)

This post was published at Wall Street Journal on Sep 17, 2014.