A sixteen page report has been released by Aleksander Berentsen and Fabian Schar, of the St. Louis Federal Reserve Bank, entitles ‘A Short Introduction to the World of Cryptocurrencies’, which discusses the history, applications, risks and future of cryptocurrency and the underlying technologies.
They are in the minority of bank experts who praise cryptocurrencies and believes that they are a good influence. The two believe that Bitcoin and major digital currencies have a permanent place in the global currency ecosystem.
In the report, they address the belief that Bitcoin and peers do not have intrinsic value of their own, saying;
“Bitcoin is not the only currency that has no intrinsic value. State monopoly currencies, such as the US dollar, the euro, and the Swiss franc, have no intrinsic value either. They are fiat currencies created by government decree…The history of state monopoly currencies is a history of wild price swings and failures. This is why decentralised cryptocurrencies are a welcome addition to the existing currency system.”
They also addressed the price of Bitcoin, which is nothing if not volatile, saying;
“Most Bitcoin users believe that Bitcoin’s limited supply will result in deflation. That is, they are convinced that its value will forever increase…The present price of the currency is determined solely by expectations about its future price. A buyer is willing to buy a Bitcoin unit only if he or she assumes that the unit will sell for a least the same price later on.”
They believe that cryptocurrencies will be viewed as an asset class themselves, and speculate that Bitcoin may evolve to take position alongside gold. What is notably missing from the report, is any discussion of the problems that Bitcoin has faced along the way. Instead, the risks that were highlighted was that a blockchain can be split in two over a disagreement amongst developers and the public and the second being that a centralised system would not necessarily be more cost-effective. The third and final risk outlined was the price volatility, saying;
“Price volatility and scaling issues frequently raise concerns about the suitability of Bitcoin as a payment instrument. As an asset, however, Bitcoin and alternative blockchain-based tokens should not be neglected…Blockchain technology provides an infrastructure that enables numerous applications. Promising applications include using coloured coins, smart contracts, and the possibility of using fingerprints to secure the integrity of data files in a blockchain, which may bring change to the world of finance and to many other sectors.”
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