Cryptocurrencies: Future or bubble?
Brian Down from Focus Economics was looking for a response on cryptocurrencies…could make an interesting thread!
I’m emailing you today because I am putting together a piece on cryptocurrencies and it would be great to get a comment from you on the subject.
While some believe that cryptocurrencies are the future, the prevailing view appears to be that cryptos are nothing more than the 21st century version of Tulip Mania. Despite this prevailing view, central banks appear to be exploring blockchain with a view to creating their own digital currencies. If you can’t beat ‘em, join ‘em, so to speak.
With that said, I’d like to get your view of the future regarding crypto/digital currencies, especially in regards to newly launched casinos in the UK. If you’re interested, you can answer my questions below or just give me your general view.
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Could cryptocurrencies supplant traditional currencies or are alternative currencies a bubble that will eventually burst?
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Could a central bank really issue its own digital currency in the near future? How could this affect the world economy and financial markets?
1) It is not an either or in part one. Crypto currencies have replaced, and bitcoin might be in a bubble.
2)The central bank has issued digital, Swift.
The real issue is semantics, everyone disagrees on what crypto means. Its real definition is ‘defined by abstract algebra’ and used specifically for authentication. Way too generic a definition.
Ask, who much will Fintech automate finance? What human functions go away? How would digital bearer bonds work? How would Fintech auto price securities?
Crypto Currencies and Blockchain are really two separate ideas. Bitcoin and other currencies uses blockchain, but blockchain can be used for many other purposes. The banks are using it for other purposes , not really for crypto currencies.
google the name of any bank or tech company with blockchain to see how widespread the adaption of the technoligy is already…bu as James Sanders says, cryptocurrencies are another thing altogether…Bitcoin is unsustainable because of the exponential growth of the power needed to continue its operation…
Will Bitcoin Mining Consume All The World’s Current Electricity Production By Feb 2020? — At a very basic level Bitcoin mining requires expensive and power hungry computer hardware. As the the IEEE explains: Mining power is high and getting higher, thanks to a computational arms race. Recall that the required number of zeros at the beginning of a hash is tweaked biweekly to adjust the difficulty of creating a block—and more zeros means more difficulty. The Bitcoin algorithm adds these zeros in order to keep the rate at which blocks are added constant, at one new block every 10 minutes. The idea is to compensate for the mining hardware becoming more and more powerful. When the hashing is harder, it takes more computations to create a block and thus more effort to earn new bitcoins, which are then added to circulation. According to Digiconomist’s Bitcoin Energy Consumption Index, as of Monday November 20th, 2017 Bitcoin’s current estimated annual electricity consumption stands at 29.05TWh. The Bitcoin Energy Consumption Index estimates consumption has increased by 29.98%over the past month. If that growth rate were to continue, and countries did not add any new power generating capacity, Bitcoin mining would:
Be greater than UK electricity consumption by October 2018 (309 TWh)
Be greater than US electricity consumption by July 2019 (3,913 TWh)
Consume all the world’s electricity by February 2020. (21,776 TWh)
the only question i have about bitcoin is does it blow up before it blows up the planet…
the biggest bitcoin mines are in china & mongolia, using cheap dirty coal
https://www.nytimes.com/2017/09/13/business/bitcoin-mine-china.html
good piece on bitcoin mining at Naked Capitalism:
https://www.nakedcapitalism.com/2017/11/bitcoin-energy-pollution.html
There is a lot of trade press, sort out the semantics as we go.
let us add our own conditions:
1) An exact duplicate of digital point to point paper cash
2) Biometric verification
3) Elimination of high frequency front running, except by contract
4) Zero to extremely low transaction costs
5) Never reveal personal data to humans, at all. Let automation and crypto protect the merchants and banks, they don’t need personal info, it should not be on the web at all.
6) Competitive currencies
7) Support for central banking.
8) Continue support for legacy paper cash.
9) auto-pricing
Call it the Fintech manifesto, and demand its development.
The problem with totally private cryptocurrencies like bitcoin is that they are plural. There is no limit on inventing new ones and so no control of the total supply of cryptocurrency. I think they can only be stable if one and only one is declared legal tender.
I think it is obvious that there is a bitcoin bubble. I believe that Bitcoin is used as a specullative asset and not as currency. The question (which can’t be answered by just looking at the blockchain) is whether BitCoin is exchanged or goods and services (used as currency) or only for regular money (dollars euros etc). I think the only way to tell is to look at total volume (recorded in the blockchain) and volume of trading on exchanges. The difference is an upper bound on actual use as money.
Crypotocurrencies are not useful as money if the exchange rate remains so absurdly unstable. BitCoin is extremely useless as a unit of account (only a gambler would write a contract in BitCoin).
The technology could be used by central banks with a legal tender fiat cryptocurrency. The central bank could stabilize the exchange rate. BitCoin lovers would hate this and everyone else would be suspicious. It probably won’t work for a while and probably will work eventually.
blockchain technology is clearly useful. There has to be a reward for miners & for most purposes that has to be regular money owed by a central administration with rules and contracts and such. A uniform distributed ledger is clearly useful for purposes other than insane speculatoin.
Ultimately a currency in any form is a human institution that relies on trust by other humans to insure it has a relatively stable and predictable value as a store of value from one day to the next.
Humans trust only a few things:
– Sun will rise very 24 hours or so in the East
-Land is bounded by oceans
– Water flows down hill.
Currencies though are not controlled by the physics as it applies to Earth. Therefore humans have to trust some other humans or group of humans when it comes to human institutions. This means they place their trust in whomever is in control of the / any currency which must be another human or group of humans (or their fantasy god as interpreted by other humans whom they trust).
Therefore if humans aren’t in control of currencies there is no control and then they cannot be trusted, and thus cannot be used as a currency — other than perhaps in the form of gambling chips in casinos.
So a crypto currency then simply becomes a currency with the attibutes of electronic transfer which is what most currencies are already.
This differs from Bitcoin type currencies in that Bitcoin’s controlled by an algorithm which defines the rate at which it is “mined” therefore created outside the control of a set of trusted humans. It then is not controlled by humans and thus can’t be trusted as a store of value from day to day, unless the humans in control of the currency creation algorithm can be trusted.. which is to say having the same attributes as national currencies already have..
The entire bases of Bitcoin is to remove the power of humans (and therefore humans’ institutions of gov’t) to control it.. It is therefore the perfect instrument of perfect and pure laissez-faire.
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