As I understand it, legal tender status forces creditors to accept bitcoin as debt repayment. Given the volatility of bitcoin, wouldn't this impact risk assessment of loans? Being obligated to accept a high volatility asset as a repayment sounds like a nightmare for creditors. Wouldn't interest rates rise in order to cover this added uncertainty?
If the cryptocurrency infrastructure and exchanges become fast enough, the exchange rate of the cryptocurrency doesn't matter. Users would buy, transfer, and the recipient would sell the cryptocurrency at the other end in however long the technology allows.
This puts cryptocurrency in a weird spot as an investment because the exchange rate doesn't matter as much.
If PayPal announced that transactions on the PayPal network would be denominated in a finite amount of PayPalCoins, everyone would roll their eyes. Call it a cryptocurrency and add some blockchain technology, though, and for some reason it's an investment that's going to the moon.
It is an existing feature.
And this is significant: debtors could repay their debts when bitcoins look like they will decrease in value with respect to the currency of denomination with an intent to harm the debt owner.
In the 19th century, there were dual currency systems with fluctuating exchange rates. I don't know anything about why they failed, just that they failed...
The loan can't be denominated in multiple currencies at once, as you seem to be thinking of, because that would make the loan amount undefined unless the two currencies were directly pegged to each other.
You can have a loan of 100 dollars. Or you can have a loan of .01 BitCoin. You can pay either off in dollars or BitCoin. How much a given pile of currency will pay off depends on exchange rates. But that doesn't affect the loan itself.
I somewhat sarcastically said nobody would denominate a loan in BitCoin, but not sarcastically at all, nobody would ever denominate a loan in "either this much of one currency or this much of another" because that is seriously a no-win situation for the entity loaning money. Obviously the loanee would pay it off in whatever is cheaper.
there will likely be a small fee to them for the conversion of Bitcoin to say, USD, but I imagine it would be similar to accepting credit cards for payment? and so it would be worked into the prices.
Quite a big ask really, no?