Report to Congress ponders cryptocurrency future

BITCOIN ATM: Gabriel Scheare uses the world's first bitcoin ATM on Oct. 29, 2013, at Waves Coffee House in Vancouver, British Columbia, Canada. Scheare said he "just felt like being part of history." David Ryder/Getty Images/Tribune News Service

WASHINGTON – Congress may be beginning to contemplate a country where cryptocurrency – not cash – is the coin of the realm.

The Congressional Research Service examined the decline in cash usage in the United States and the potential rise of alternative payment systems, including bitcoin or other digital assets, in the purchase of goods and services.

The CRS is tasked with producing nonpartisan advice on issues that may come before Congress, especially when lawmakers express interest in a certain subject. Alternative payment systems are gaining steam as lawmakers introduce legislation that would require stores to take cash and examine the impact of financial technology, or fintech.

Moving away from cash

Although the amount of currency in circulation has increased over the last 20 years, Federal Reserve studies suggest the use of cash in payments may be dropping, according to the CRS report, issued May 10. Just how much may be a matter of debate, but the migration away from cash transactions at retail stores is evident in daily life. So far, the move has been largely in favor of what the CRS refers to as "traditional noncash payment systems" such as credit cards and debit cards. And the report even includes rising payment mobile apps, of which there are many and no clearly established market leaders, in the category of "traditional."

The question facing businesses, policymakers, consumers and the economy at large is how significant a role alternative channels such as digital currencies will play in the future of the U.S. retail payments system.

The use of cryptocurrencies, blockchain technology and distributed ledgers to make payments in the U.S. is "quite rare relative to cash and traditional systems," the report states. While there is a public interest in and demand for some digital currencies, analyses indicate they are not being widely used and accepted as payment for goods and services, "but rather as investment vehicles."

For one thing, unlike dollars, cryptocurrencies are not legal tender, meaning creditors are not legally required to accept them to settle debts.

"Consumers and businesses also may be hesitant to place their trust in these systems because they have limited understanding of them," CRS writes, suggesting people are satisfied with the speed and convenience of current traditional electronic payment systems, and see no reason for society to move on to unfamiliar crypto-based alternatives. The report includes services such as Venmo, Apple Pay and Google Pay in the traditional category.

Looking ahead

Despite the limited uptake so far, some believe they will be at least part of the payment options in the future.

"While cryptocurrencies may not supplant traditional payments aggressively in the near term, the value of blockchain and innovative approaches to the payments industry extends beyond fiat currency replacement," said Amy Zirkle, interim CEO of the Electronic Transactions Association, a Washington-based trade group for the payments technology industry. She said the value could be in solving cross-border payments, streamlining communication between financial institutions, and better securing data.

Cashless discrimination

One concern about moving to new payment options, though, is the possibility of excluding people if certain digital assets become the norm. Even under the current traditional electronic payments system, there is a growing political opposition in some parts of the country to "cashless" retail establishments, which accept only credit cards, debit cards and mobile apps for payment.

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