Economists’ Point of View about Future of Cryptocurrency
Following crypto economy? Then you might wonder where the market is heading and what the future of cryptocurrency would look like. Indeed, a war is brewing in the background of every surge and fall of the digital currency market. To one side, any upward movement of the value of digital coins is an indication of a blowing bubble or the result of the shenanigans of a black-box-natured blockchain system. To the other, though, all seems fine—the crypto market works as any market does and all the uproar against the digital currencies comes from the nostalgia and obsession with the idea of centralized grip over the value of currency. The facade of the confrontation may seem, therefore, as if the battle is raging between the economic old-schoolers and the technical financial geeks of the day—old vs. new. But, there is more to it than meets the eye. What is really causing the ideological crash and how would it affect the future of cryptocurrency?
The proponents of the new class of assets labeled the crash as inevitable; one which was well predicted ahead of the fact. The opponents of crypto-world, however, cite the incident as a sign of inherent problems with the novel invention. The collision course between the two camps is evident nowhere better than in October 11, 2018 hearing on “Exploring the Cryptocurrency and Blockchain Ecosystem” held by the U.S. Senate Committee on Banking, Housing and Urban Affairs. NYU Professor, Nouriel Roubini who found a reputation for himself for warning the world of 2008 financial meltdown three years prior to the incident, was on one side of table attacking the cryptocurrencies and on the other side of the table sat Coin Center director of Research, Peter Van Valkenburgh, playing the defense.
In the Senate hearing, the offense painted a grim picture of digital coins: “Crypto is the mother and father of all scams…blockchain is the most overhyped technology ever and is no better than a glorified database.” The major concern on Roubini’s side was the anonymity enjoyed by users of blockchain—one characteristic that enables individuals to hide from legal authorities. In his account, this property of crypto transactions can facilitate criminal activities—mainly tax evasion.
Do you have a second? Ficas CEO gave an incredible Speech lately about Decentralized governance and singularity! It’s REAL Hot!
“Crypto is the mother and father of all scams…blockchain is the most overhyped technology ever and is no better than a glorified database.”
Raises the crypto, so do the attacks
Time passed and the attacks on the blockchain and cryptocurrencies turned rather tacit when digital coins started to slump in value. For almost the whole past year, the crypto market was not doing great. However, it seems that crypto market is now back on track. And not surprisingly, a new wave of concerns about digital coins has grown and attacks on blockchain are probably on the horizon. One of the latest calls for caution was heard from Joseph Stiglitz. The economics Nobel Laureate and Bill Clinton’s economic advisor, told CNBC that “cryptocurrencies should be shut down” because they “enable illicit activity by making money transactions less transparent”.
Hence, transparency is one of the main issues for all of those who have less affection for digital coins. For crypto evangelists, though, the prevalent financial system is not only badly centralized, but it also is not secure. In that very Senate hearing, Peter Van Valkenburgh points to the vulnerability of security practices maintained by centralized institutions, citing as an example the breach at Equifax which resulted in the stealing of Social Security numbers of 143 million American—nearly half of the population of the U.S.
So, the battle lines are not merely drawn between the old and the new. It may seem that feud is about transparency and security, however, it drags issue of history, faith, and practicality. You can find a clue to all these in a column written by Paul Krugman in New York Times. There, the economics Noble prize winner and former MIT and Princeton Professor recounts his reasoning for why he is a crypto skeptic.
Let’s start with history. Central bankers and governments, as Krugman claims, are “mindful of their reputation”, and therefore are likely to “exercise restraint”. For Bitcoin, though, to make all believe that it is for real, it has to bear the “costs of producing something that satisfies that test”. It also has to prove that its underlying value is “high enough to discourage fraud”. That is why Krugman calls cryptocurrencies “a backward movement in history”, using “cutting-edge technology”—backward because Bitcoin requires “backed means of payment”.
Fiat money, though, has a certain value, in and of itself, courtesy of a government backing it. That is to say, if people just stop having “faith” in the greenback, its value would not fade into oblivion. Even gold does not enjoy this status. And, the value gold is as well susceptible to the faith of economic agents, even despite its having a tether to the real world (through different uses in industry and jewelry). Cryptocurrencies do not fall into either of the categories, Krugman claims. He concludes that the dependency of crypto coins on “self-fulfilling expectations” makes collapse “a real option”.
Finally, Krugman points to the fact that money is above all else, a means of transaction. Crypto coins, however, are yet to be widely used as a way for making payments. The MIT educated economist claim, on this basis, that right now digital currencies rival large-denomination notes—e.g. 100 dollar bills or 500 euro bills—in that they are both are used for “tax evasion, illicit activity, etc” specifically “outside the U.S.”.
“Transparency is one of the main issues for all of those who have less affection for digital coins. “
In the face of any of these allegations, crypto enthusiasts did not remain silent. For one, they fight back by arguing that “fiat money does not work as well as Krugman thinks” and the cost of money transaction under the prevalent system is far from the “low-cost” and “frictionless” process that crypto skeptics claim.
The argument concerning the excessive vulnerability of crypto market in the face of credibility shocks also infuriates people favoring cryptocurrency. They hit back, saying that “the market pays what the market is willing to pay for an asset.”
Another line of defense for the crypto side comes from a one of top ten crypto-sages in the world and the CEO of FiCAS, Ali Mizani Oskui. In a video posted on his twitter account he responded in general to the conventional attacks coming from economists on cryptocurrency and in particular, to Joseph Stiglitz. There, Mizani urged Stiglitz to “not use the traditional economics to climb on the cliffs of modern economy” since “The foundation of global economic system is changing, and the decentralization revolution is coming.”
Ali Mizani Oskui’s point of view about cryptocurrencies
Crypto evangelists are also mad at economists for mistaking Bitcoin for the whole crypto market. Some even acknowledge Krugman’s critique of Bitcoin’s protocol which they dub “wasteful and costly”. Having called this equivalency flawed out, they assure that there are many crypto companies out there that use energy efficient algorithms.
An Evolution in the Making
For Mizani, like any other major player in the crypto market, cryptocurrency is not just about money and banking, “it is more about the decentralization of power”—something he brands as “vital to the health of democracy.” He holds that the idea of crypto market harboring criminals is of flawed nature. “It is true that each powerful invention can be employed by criminals, but it is not enough reason to ignore creativity and stop building better tools”, says Mizani in response to Stiglitz.
But in all, the questions that Krugman raises are still unanswered and the call from Stiglitz may be fearsome to some of the investors. At least for those faithful in cryptocurrency, these attacks on crypto market are attempts at “shutting down a revolution”. And to be fair, cryoptocurrency has just begun its journey. Good to remember where dollar was—say, five years after Wall Street Black Thursday, 1929. The crypto enthusiasts, now, strive for the tolerance of conventional forces in the financial world, and if it is not bestowed upon them, they seem determined to fight for it. For they think they are on the right side of history. “It is part of humankind evolution” Mizani insisted in his video. By the way, it is apparent that those questions which remain to be answered should be solved not by the crypto enthusiast but by the evolution of crypto market—technically and financially. In the meantime, waiting is what is worth doing.
Do you have a second? Ficas CEO gave an incredible Speech lately about Decentralized government and singularity! It’s REAL Hot!
“For Mizani, like any other major player in the crypto market, cryptocurrency is not just about money and banking, “it is more about the decentralization of power”—something he brands as “vital to the health of democracy.”