Over the fourteen years since the emergence of Bitcoin, its supporters have promised that cryptocurrencies will revolutionize money, payments, finance - or all of these. These remain mere promises, and there is an increasing sense that they are unattainable - yet we find that many policymakers have accepted them at face value, supporting experiments in cryptocurrencies as a necessary step towards an unclear innovative future. Were these experiments harmless, policymakers could afford to ignore them, but cryptocurrencies involve significant problems. In light of these negative effects, policymakers should take a closer and more accurate look at the crypto assets themselves and at the databases they are based on (known as blockchain) to determine whether cryptocurrencies can fulfill their promises. If they cannot, or are unlikely to, fulfill those promises, strong regulatory frameworks must be established to mitigate the negative consequences of cryptocurrency experiments.
Among the negative effects of cryptocurrencies is that their rise has triggered a surge in ransomware attacks and led to excessive energy consumption. The blockchain technology underlying Bitcoin relies on a proof-of-work mechanism to verify data and consumes as much energy as Belgium or the Philippines; meanwhile, Ethereum's blockchain technology continues to promise a transition from proof-of-work to the more energy-efficient proof-of-stake mechanism, but this does not seem likely to ever be realized.
A financial system based on cryptocurrencies could lead to the sustainability, even exacerbation, of many traditional finance issues. For example, the leverage in the financial system may double through limitless supplies of tokens and coins used as collateral for loans; stringent self-executing smart contracts could deprive the financial system of the necessary flexibility and discretionary judgment in unexpected and sometimes painful situations. More broadly, the cryptocurrency ecosystem is characterized by excessive complexity, and this complexity is likely to be a source of instability (as complexity is associated with difficulty in assessing risks even with abundant available data, and as the system's complexity increases, so does the likelihood of it facing 'natural disasters', where a seemingly minor triggering event leads to a series of cascading difficult problems). Thus, any financial system based on cryptocurrencies is likely to be vulnerable to the usual boom and bust cycles that destabilize.
The complexities of cryptocurrencies arise from attempts to achieve decentralization - by distributing powers and governance within the system, there is no need for trusted intermediaries such as financial institutions. This is the fundamental assumption on which the initial white paper of Bitcoin was based, presenting a cryptographic solution aimed at allowing payments to be sent without the involvement of any financial institution or other trusted intermediaries. However, Bitcoin quickly became centralized and currently relies on a small group of software developers and mining pools to function efficiently. It has become as internet entrepreneur and publisher Tim O'Reilly described it: 'Blockchain technology has become the fastest way I've ever seen to centralize decentralized technology.' Despite failing to fulfill the decentralization promise stated in Bitcoin's white paper, the fundamental complexities inherent in the technology that sought to achieve this still exist - which also applies to cryptocurrencies on a broader scale.
#StrategyBTCPurchase #MemecoinSentiment #BTC120kVs125kToday #BinanceHODLerLA #FOMCWatch $XRP
