Private cryptocurrencies are best treated as risky investment assets rather than actual currencies
The age of cryptocurrencies dawned in 2008. In October that year, Satoshi Nakamoto wrote his famous proposal for a new form of peer-to-peer payments that would bypass the traditional financial system: Bitcoin. The use of blockchain technology for a payment system is without doubt one of the most exciting new developments in finance. I had argued here in December 2017 that Bitcoin is likely to function poorly as a currency. Also, it is not clear that a financial system based on private money will have the ability to generate liquidity in case there is a payments crisis. “The idea of a private, frictionless payment system with 2.6 billion active users may sound attractive. But as every banker and monetary policymaker knows, payment systems require a level of liquidity backstopping that no private entity can provide. Unlike states, private parties must operate within their means and cannot unilaterally impose financial obligations on others as needed. That means they cannot rescue themselves. They must be bailed out by states, or be permitted to fail," Katharina Pistor of Columbia Law School wrote in an essay published in 2019.
Recommended For You
Select your Category
Internet Not Available
Wait for it…
Log in to our website to save your bookmarks. It'll just take a moment.