Economist opinions on cryptocurrency

Published в Coastline forex factory | Октябрь 2, 2012

economist opinions on cryptocurrency

“I believe that all but the most diehard bitcoiners have given up on bitcoin as a currency,” answers Merton, “and have changed its use to being. Nobel laureate Paul Krugman has slammed bitcoin as pointless, wasteful, and in large part a Ponzi scheme. Here are the economist's 12 best. Eighty-five percent of respondents held this view, while nine in 10 institutional investors and corporate treasury survey takers indicated that. LIVE BASKETBALL ODDS

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As one illustration, domestic and foreign investors continue to eagerly snap up trillions of dollars in U. Treasury securities even at low interest rates. New cryptocurrencies called stablecoins aim to have stable values and therefore make it easier to conduct digital payments. Facebook plans to issue its own cryptocurrency, called Diem , that will be backed one for one with U. But the value of stablecoins comes precisely from their backing by government-issued currencies.

So while dollars might become less important in making payments, the primacy of the U. Cryptocurrencies may or may not persevere as speculative investment vehicles, but they are triggering transformative changes to money and finance. As the technology matures, stablecoins will hasten the ascendance of digital payments, ushering out paper currency. The prospect of competition from such private currencies has prodded central banks around the world to design digital versions of their currencies.

The Bahamas has already rolled out a central bank digital currency, while countries like China, Japan and Sweden are conducting experiments with their own official digital money. The dollar bills in your wallet—if you still have any—could soon become relics. Even transactions such as buying a car or a house could soon be managed through computer programs run on cryptocurrency platforms. Conversely, if the economy is booming, the government can contract the money supply to reduce inflationary pressure.

Thus, monetary policy is a valuable tool to reduce macroeconomic volatility. Thanks to monetary policy, business cycles are far less volatile today than they were in the 19th century, when we had huge swings. But if cryptocurrency takes over the way its proponents would like, we could return to the ups and downs of the pre-monetary policy era.

I also worry about the effect that cryptocurrency could have on banking. Crowdfunding is not an adequate substitute for the expertise in evaluation that banks provide. If that expertise is lost, then entrepreneurship will be under threat.

Despite these drawbacks, cryptocurrencies are attracting a lot of attention. They seem new and different to people, and their volatile prices appeal to speculators, who love volatility. For people suspicious of authority, cryptocurrencies are a great way to snub their noses at government and banks.

Indeed, there is a view—-which I believe is misguided—that cryptocurrency is useful because its supply like the gold supply is not affected by economic conditions and thus protects us from inflation. But that view misses the point that responsible central banks have done vastly more good than harm precisely by making the supply depend on how the economy is faring. Suppose the US created a crypto-dollar and Europe created a crypto-euro.

They would be as easy to transfer as Bitcoin—- and I anticipate that governments around the world will move in that direction. Indeed, once we have the crypto-dollar, the social value of private cryptocurrencies will be gone. I can see no good reason for Bitcoin once that happens.

You then have sudden price rises that bring attention to the crypto-ecosystem and you see cascading hype that forms what can be perceived as a bubble. You see these cycles returning time and time again, and it feels as if we are in one right now. Is it truly a bubble? If you look at the ecosystem as a whole, there are certain elements that definitely exhibit some tendencies of bubbles, but if you look at systems like Bitcoin — even after the corrections, the price still remains way above the previous cycle highs.

That is not the traditional trajectory of a bubble- they tend to have an upward trajectory, then a massive crash and no recovery. One of the defining aspects of cryptocurrencies is that there is no central-bank or issuer. They are more like virtual, digital commodities rather than financial assets.

You can compare crypto to gold which also has no issuer. You have a predetermined supply which can be verified without having to trust someone. Cryptocurrencies function quite similarly- they have a utility function in their own network which often becomes an incentive.

It is then through a complex interplay of game theory and economic incentive design that the system pulls together. You have a base asset, a unit of account and a pricing mechanism. You have Bitcoin with its native unit, BTC and Ethereum with its native unit ETH and can imagine them as international monetary systems that bring-together local ecosystems.

We are seeing the emergence, development and evolution of entire monetary systems live, unfolding before our eyes. Bitcoin may be the exception given its size and scale — but pretty much all other cryptocurrencies of which there are tens of thousands have no relevance at all. Q: What are the energy implications of cryptocurrencies and blockchain? Not every blockchain network needs to have that level of energy to function. There is a very specific design primitive that was introduced with Bitcoin called proof of work.

In recent years, researchers have come up with alternative mechanisms and theories to arrive at the proof without the insane levels of energy use but the consensus has not yet been reached about whether they offer the same level of guarantee and proof as the traditional method. Until Bitcoiners are convinced by alternate mechanisms, this will not change.

Q: Will we need to regulate cryptocurrency? This may be true in some cases, but at the network level — that is absolutely not the case. The actual industry that has formed around cryptocurrencies with employees, partners and so-forth are bound by the traditional regulations that apply to financial services of a similar nature. What regulators have done in the past and continue to do is to regulate the endpoints rather than the network — this gives much tighter control over the entire system as it enables the tracking of inflows and outflows.

Q: Do cryptocurrencies facilitate crime? Every single transaction by every single participant is stored forever. This is a super-inefficient way to run any payment system or financial market, but it gives a level of trust that makes the system valuable to start with. Each transaction is a string of numbers but those numbers tie to real-world identities.

So, even if 50 years if there is some new crypto-breakthrough, you will still be able to check every transaction that happened today. Our traditional banking system by comparison is made-up of opaque and closed ledgers in different jurisdictions often making it practically impossible to get data.

Consumers need to be very aware that if you transact on a blockchain, it will be stored there forever. So be careful what you do. Q: What excites you about the future of blockchain? Eric Maskin]: Blockchain was created for Bitcoin, which is a terrible application.

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Meme coins are the future. Bitcoin is now seen as the granddaddy of cryptocurrencies, and investors or speculators, more precisely are piling into other cryptocurrencies such as Dogecoin. And there is no clear constraint on the supply of these coins, so their prices surge or crash on random events such as tweets from Musk.

For all its flaws, however, bitcoin remains dominant : It accounts for nearly half of the total value of all cryptocurrencies. The dollar, by contrast, is backed by the U. Investors still trust the dollar, even in hard times. As one illustration, domestic and foreign investors continue to eagerly snap up trillions of dollars in U.

Treasury securities even at low interest rates. New cryptocurrencies called stablecoins aim to have stable values and therefore make it easier to conduct digital payments. Facebook plans to issue its own cryptocurrency, called Diem , that will be backed one for one with U. But the value of stablecoins comes precisely from their backing by government-issued currencies. So while dollars might become less important in making payments, the primacy of the U.

But if I live in a remote part of the world where I might not already have a bank, that could be a headache. Through cryptocurrency, we can do the transfer directly and avoid the intermediary. Unfortunately, there is a substantial downside too. First, circumventing banks makes it easier to carry out illegal transactions e. So, we might be better off with a transfer system that legal authorities can monitor on at least an occasional basis. Suppose that the economy is faring poorly: unemployment is high and output is low.

The government i. Conversely, if the economy is booming, the government can contract the money supply to reduce inflationary pressure. Thus, monetary policy is a valuable tool to reduce macroeconomic volatility. Thanks to monetary policy, business cycles are far less volatile today than they were in the 19th century, when we had huge swings.

But if cryptocurrency takes over the way its proponents would like, we could return to the ups and downs of the pre-monetary policy era. I also worry about the effect that cryptocurrency could have on banking. Crowdfunding is not an adequate substitute for the expertise in evaluation that banks provide. If that expertise is lost, then entrepreneurship will be under threat. Despite these drawbacks, cryptocurrencies are attracting a lot of attention.

They seem new and different to people, and their volatile prices appeal to speculators, who love volatility. For people suspicious of authority, cryptocurrencies are a great way to snub their noses at government and banks. Indeed, there is a view—-which I believe is misguided—that cryptocurrency is useful because its supply like the gold supply is not affected by economic conditions and thus protects us from inflation. But that view misses the point that responsible central banks have done vastly more good than harm precisely by making the supply depend on how the economy is faring.

Suppose the US created a crypto-dollar and Europe created a crypto-euro. They would be as easy to transfer as Bitcoin—- and I anticipate that governments around the world will move in that direction. Indeed, once we have the crypto-dollar, the social value of private cryptocurrencies will be gone. I can see no good reason for Bitcoin once that happens.

You then have sudden price rises that bring attention to the crypto-ecosystem and you see cascading hype that forms what can be perceived as a bubble. You see these cycles returning time and time again, and it feels as if we are in one right now. Is it truly a bubble? If you look at the ecosystem as a whole, there are certain elements that definitely exhibit some tendencies of bubbles, but if you look at systems like Bitcoin — even after the corrections, the price still remains way above the previous cycle highs.

That is not the traditional trajectory of a bubble- they tend to have an upward trajectory, then a massive crash and no recovery. One of the defining aspects of cryptocurrencies is that there is no central-bank or issuer.

They are more like virtual, digital commodities rather than financial assets. You can compare crypto to gold which also has no issuer. You have a predetermined supply which can be verified without having to trust someone. Cryptocurrencies function quite similarly- they have a utility function in their own network which often becomes an incentive.

It is then through a complex interplay of game theory and economic incentive design that the system pulls together. You have a base asset, a unit of account and a pricing mechanism. You have Bitcoin with its native unit, BTC and Ethereum with its native unit ETH and can imagine them as international monetary systems that bring-together local ecosystems.

We are seeing the emergence, development and evolution of entire monetary systems live, unfolding before our eyes. Bitcoin may be the exception given its size and scale — but pretty much all other cryptocurrencies of which there are tens of thousands have no relevance at all.

Q: What are the energy implications of cryptocurrencies and blockchain? Not every blockchain network needs to have that level of energy to function. There is a very specific design primitive that was introduced with Bitcoin called proof of work.

In recent years, researchers have come up with alternative mechanisms and theories to arrive at the proof without the insane levels of energy use but the consensus has not yet been reached about whether they offer the same level of guarantee and proof as the traditional method.

Until Bitcoiners are convinced by alternate mechanisms, this will not change. Q: Will we need to regulate cryptocurrency? This may be true in some cases, but at the network level — that is absolutely not the case. The actual industry that has formed around cryptocurrencies with employees, partners and so-forth are bound by the traditional regulations that apply to financial services of a similar nature. What regulators have done in the past and continue to do is to regulate the endpoints rather than the network — this gives much tighter control over the entire system as it enables the tracking of inflows and outflows.

Q: Do cryptocurrencies facilitate crime? Every single transaction by every single participant is stored forever. This is a super-inefficient way to run any payment system or financial market, but it gives a level of trust that makes the system valuable to start with.

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