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Tony McLaughlin of emerging payments and business development at Citi tells Finextra TV of his soft spot for bitcoin as an alternative investment, but points out the inefficiencies that still afflict the cryptocurrency.

Comparing bitcoin to central bank digital currencies (CBDCs) being developed in countries such as China and Sweden, with research and discussion ongoing in many others, McLaughlin draws attention to the proof-of-work model that the bitcoin blockchain is built on.

CBDCs will not rely on proof of work. They will be quasi-centralised systems and not open to anonymous people running nodes, he says.

McLaughlin says this would also be the case with private digital currencies like Libra.

The shortcoming of a proof-of-work blockchain is the substantial amount of energy required to power the computers used to solve the mathematical problems and win the right to add the next block to the ledger.

This makes mining a hugely expensive task and with a diminished reward now that bitcoin has experienced its third halving it may prove an untenable business to be in.

McLaughlin describes the proof-of-work model and the ensuing energy expenditure as a function of how people achieve consensus in these open ecosystems.

Nonetheless, McLaughlin speaks of his fondness for bitcoin due to the fundamental ethos that lies behind it.

Ive got a little bit of a soft spot for bitcoin because of its ideological purity, if you like, he says, given the utopian idea of one currency for the whole world.

Independent from the negative consequences of financial stimulus from governments and central banks, bitcoin provides a useful diversification tool in investment portfolios to protect against inflation.

The cryptocurrency suffered an initial plunge in its value in mid-March, dropping to below $4000 at one point, before tracking back up and has been consistently challenging the $10,000 resistance level over the past month.

Bitcoin is a non-correlated asset, so its okay for those purposes, but for actually making payments its got some significant downsides, McLaughlin says.

Adoption of bitcoin for payment transactions hasnt taken off during this period. It remains a speculative or alternative asset in the same way that people invest in racehorses, art and wine.

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Citi's Tony McLaughlin on CBDCs, Libra and bitcoin - Finextra