In the last decade, cryptocurrency has emerged as a worldwide phenomenon, despite the fact that there is still very much to be learned about this rapidly-expanding technology. While you may use your cryptocurrencies to place bets on the Lakers covering the spread, there are other, perhaps more pressing, matters regarding its existence.
With regard to this still somewhat-unknown technology and its potential to disrupt established financial institutions, there are several fears and anxieties circulating.
Joseph A. Grundfest, a professor at Stanford Law School, recently explained how cryptocurrencies are now being utilized, where errors have been made, and what the future holds for this technology.
A distinguished professor and specialist on financial systems, as well as a former commissioner of the Securities and Exchange Commission, Grundfest is in a unique position to provide insight into the future of Bitcoin.
The Reality Of Trustless Systems
Proponents of Bitcoin and other cryptocurrencies assert that these financial platforms are fundamentally trustless systems – that is, they are not directly linked to any nation-state, government, or other governing authority. The argument is asserted that cryptocurrencies are preferable to conventional physical currencies since they do not rely on any external entities such as government entities such as the U.S. federal government.
Grundfest points out that, regardless of whether you believe this is a positive or negative development, the notion is not accurate in its entirety. Cryptocurrencies are not completely trustless in their operation.
They are still relying on the underlying infrastructure that powers cryptocurrencies such as Bitcoin, which is based in large part in China, to function properly. The Chinese government has the theoretical ability to alter the basic nature of cryptocurrencies by forcing its will on the data miners who keep them functioning.
Libra: It’s Not All That It’s Made Up To Be
It has been suggested that Facebook’s (Meta) contribution to the cryptocurrency industry, known as Libra, would provide a solution to a number of different financial concerns. In particular, the platform was created to make international payments easier while also reducing or eliminating superfluous transaction fees and charges.
Even while Professor Grundfest acknowledges that the aim is commendable, he argues that the technique used to achieve it is profoundly wrong. He does not believe that adding another cryptocurrency is the best option for reducing the number of payment transactions, and he does not support Facebook’s efforts to completely sidestep established financial institutions.
As an alternative, Grundfest contends that Facebook would have been better served by establishing its own bank. This could have served as a key financial institution for users.
If the corporation had chosen to do so, it could have focused concentration on developing banking systems that would have been tailored to each country or area, meeting regulatory requirements, and bringing costs down. Then it would have made sense to join each one together to form a global network after those had been developed and public confidence had been established.
Cryptocurrency: A Stable Coin Might Just Be The Answer
It has become increasingly popular to use stablecoins to back a cryptocurrency with assets that have real value, similar to the way that the U.S. dollar used to lie on the gold standard. It doesn’t even matter what kind of assets you have; they may be other currencies or commodities or almost anything.
Grundfest has some reservations about this technique for a variety of reasons. For starters, it is simply a replication of a system that exists already. In addition, since cryptocurrencies are not as easily audited and monitored as conventional currency, it is possible that individuals will be more inclined to perpetrate fraud.
Lastly, Grundfest discussed some of the most powerful uses of Bitcoin in his closing remarks. As an example, those who live in nations where their currencies are weak may find it more advantageous to invest in Bitcoin than local equities and bonds.
The long-term viability of cryptocurrency is still up in the air. When it comes to potential, supporters see nothing but opportunity, while skeptics see nothing but danger. Even if Grundfest maintains his skepticism, he does acknowledge that bitcoin may end up changing the world.