Cryptocurrencies are a different sort of financial technology from bank deposits, yet they are being shoehorned into the same category for regulatory purposes.
Bitcoin and Blockchain
Facebook's Libra is easily and probably rightly criticized by crypto purists as a halfway house that makes too many concessions to legacy systems and plays too nicely with the existing regulatory system. All true. But that’s not where the story ends.
Volatility is to be expected for new media of exchange. But one should also be able to trace a lot of that volatility to news.
Because so many lack the patience to understand, and perhaps because so few can explain it coherently, there is a strange lust in the land to debunk the whole thing. Every single time the market drops, people get busy writing obituaries for crypto. I’ve been seeing these appear since the market price was $14.
Using an encrypted digital ledger – one that substitutes hashes for trust – eliminates vast numbers of layers and time. Time and trust equal counterparty risk. Automating this with blockchain drops the costs to a small fraction while increasing certainty.
Financial intermediaries that might not stand a chance against blockchain technology were it allowed to develop in a vacuum instead might be strengthened by it.
Ten years have passed since Bitcoin was introduced, and it still isn't used much in online commerce. Will the Lightning Network get it back on track?
In a recent NBER working paper, Barry Eichengreen argues “there is no straight line from commodity money to fiat money and from there to crypto.”
With perfect hindsight, we construct narratives about how technology changes the world. The internet flattened the world. Cars replaced horses. But what we miss, the often-catastrophic messiness during those transitions, is so much more interesting.
Regulatory uncertainty is one of the major risks facing the blockchain industry as it matures. Ohio’s courting of the industry throughout 2018 may have value beyond a handful of overblown headlines.
F.A. Hayek’s proposed market for private monies resembles the market for cryptocurrencies that has emerged over the last decade.