What Does the Future Hold for Cryptocurrency
In recent years, cryptocurrency has gained worldwide attention, but there is still a lot to learn about this developing technology. Concerns and anxieties abound regarding technology’s potential to upend established banking structures.
Professor Joseph A. Grundfest of Stanford Law School recently spoke about the use of cryptocurrencies now, mistakes made in the past, and what the technology’s future holds. Professor Grundfest, a specialist in financial systems and a former Securities and Exchange Commission commissioner, is uniquely qualified to offer insights on the direction of cryptocurrencies.
The truth about trustless systems
Proponents of Bitcoin and other cryptocurrencies assert that these online payment systems are intrinsically decentralized, meaning they aren’t connected to any particular country, organization, or government. Some would contend that because cryptocurrencies are independent of entities like the US federal government, they are better than conventional physical currencies.
Whether you believe that to be a good or negative thing, Grundfest points out that it’s not totally true. Actually, cryptocurrencies aren’t entirely untrustworthy. They still rely on the mostly Chinese-based underlying technology that drives cryptocurrencies like Bitcoin. Theoretically, by controlling the data miners who keep cryptocurrencies going, the Chinese government might fundamentally alter cryptocurrencies.
Libra: Not all it’s cracked up to be
Some have hailed Facebook’s addition to the cryptocurrency space, Libra, as the solution to a myriad of money problems. The platform was specifically created to make international payments easier and do away with pointless fees and charges associated with transactions.
While Professor Grundfest acknowledges that the objective is commendable, he thinks the strategy is seriously wrong. In his opinion, there is no better way to reduce payment transactions than by launching a new cryptocurrency, and he disagrees with Facebook’s efforts to completely avoid established financial institutions.
Professor Grundfest contends that Facebook would have been better off starting its own bank to serve as its users’ primary financial institution. The business may have concentrated on developing banking systems that are unique to each country or area, meeting regulatory requirements, and cutting expenses. Connecting them together to form a worldwide network would make sense after those were created and public trust had grown.
Is stable coin the answer?
Similar to how US currency was formerly backed by actual assets when it was on the gold standard, stable coins have become more and more popular as a means of providing real value to bitcoin. These assets could be commodities or other currencies; in fact, they could be anything.
Grundfest finds a few problems with this strategy. Firstly, it is essentially a replication of an existing system. Another worry is that because it’s more difficult to audit and keep an eye on than traditional currencies, it can make fraud simpler.
The future of cryptocurrencies is still up for debate. Critics see only risk, while supporters see endless possibilities. Though he is still skeptical, Professor Grundfest acknowledges that cryptocurrencies can be a workable option in some situations.
