American Express has published an article from financial industry veteran Frances Coppola that discusses the various aspects, features and challenges of bitcoin and its future in the international payments system.

Titled, “Bitcoin and the Future of Blockchain in International Payments Systems”, the article starts off explaining the bitcoin mining– the process through which bitcoins are created.

“As more bitcoins enter the international payment system, mining “undiscovered” ones becomes more difficult, requiring greater computing power. The energy cost of bitcoin mining is now considerable. Some miners locate themselves in places such as Iceland where energy is abundant and cheap, but many people question whether this energy could be more productively used”, Coppola noted.

She further explains that bitcoin transactions are recorded on the blockchain, which provides a permanent record of bitcoin movements distributed across all computers in the Bitcoin system.

“[I]t [Bitcoin] is not as anonymous as physical cash. It is more like an international payments system”, she added.

However, Coppola said that the uncontrolled and untraceable nature of Bitcoin quickly made it the most preferred currency for illegal entities such as online drug dealers and money launderers. To that end, she mentioned the infamous Silk Road case. She went on to say that the anonymity of Bitcoin made funds, exchanges and marketplaces targets for hackers, resulting in several thefts and fraudulent investment schemes.

Speaking of challenges faced by bitcoin, Coppola said:

“As an international payments system, Bitcoin faces a dilemma. Will it remain a niche technology, or could it challenge existing international payments providers? Under current protocols, Bitcoin has significant capacity limits. If it is to become a world-leading payments solution, the Bitcoin community must agree to increase the size of the blockchain, so that Bitcoin can handle larger volumes fast and efficiently. So far, no agreement has been reached.”

Coppola further noted that Ethereum virtual currency offers the same anonymous transaction capability as Bitcoin, but goes a step further with “smart contracts” that enable consumers to set their own legal terms and conditions. In addition to Ethereum, she says that bitcoin might soon have to compete with digital currencies issued by central banks.

In conclusion she says, “Bitcoin is still a long way from becoming an international settlement currency to rival the US dollar, let alone a substitute for government-issued fiat currencies. But governments are very interested in blockchain technology as a solution to central clearing problems…Blockchain technology is set to revolutionise international payments.”