Deconstructing ‘Cryptocurrencies: Irrational Exuberance or Brave New World?’

Facilitated by Anna Irrera, a FinTech Correspondent for Thomson Reuters, Milken Institute’s panel discussion “Cryptocurrencies: Irrational Exuberance or Brave New World?” was a riveting conversation examining the future applications and implications of a world fuelled by cryptocurrency. The panel comprised of Bill Barhydt, the Founder and CEO of Abra and Alex Mashinsky, the CEO of Celsius Network occupying pro-crypto stances. Brent McIntosh the General Counsel for the U.S. Department of the Treasury viewed the technology through the neutral lens of a legislator, while Nouriel Roubini, the Chairman of Roubini Macro Associates LLC occupied a steadfast position against cryptocurrency.

These are the highlights of the panel:

The Crypto Enthusiasts

Future Outlook : Barhydt pointed out that cryptocurrencies were a nascent asset class, with volatility expected to last at least a decade or so. After a certain amount of time, the utility of cryptocurrencies would far outweigh their speculative nature and gradually stabilise in value. Prices of cryptocurrencies would only continue to rise due to its finite supply and soaring public interest. At this point, more people were willing to buy and hold onto their cryptocurrencies than sell.

Comparisons With The Early Internet: Recounting his experience with writing VoIP protocols (a communication technology used in application such as Skype and Viber) in the Nineties, Mashinsky drew parallels between the decentralised nature of the Internet and cryptocurrency. He described cryptocurrencies as a MoIP (Money over Internet Protocol) facilitating international transfers and solving the problem of double-spend. Banks and financial institutions would find themselves having to adjust to a world with no-cost transactions, with crypto-financial service providers would oversee cross-border transactions for free. Just like the internet is a vehicle for decentralisation of information, cryptocurrency would advance the decentralisation of money.

A Novel Solution: Barhydt shed some light on the the versatility of cryptocurrencies by discussing Abra’s capabilities-decentralised global investing, global money transfers, scalable smart contracts, consumer asset contracts to facilitate lease payments in emerging economies. These services would not have been possible without cryptocurrency technologies. He also likened crypto to Netflix’s TCP/IP (Transmission Control Protocol/Internet Protocol streaming service, which provides multiple users access to unlimited content without knowing the identity of other users.

An Alternative System: Just like VoIP, cryptocurrencies creates an alternative system, potentially changing the way transactions occur. Smarts contracts provide aspiring investors in remote locations with unprecedented access to a variety of asset classes such as stocks and bonds. Mashinsky viewed cryptocurrencies as “the footsoldiers in the battle between centralisation and decentralisation”. For him, the crypto world presented a chance for mass participation and adoption where anyone could open up an account, eventually legally bypassing the banking system to exchange and create value. Conversely, traditional financial institutions such as banks block people’s financial endeavours by refusing credit cards.

The Naysayers:

The Big Bubble: Describing bitcoin and cryptocurrency in general as a massive bubble, Roubini mentioned it was fuelled mostly by people with zero to little financial literacy. At the height of the bubble, investors were worth millions. The same investors lost almost all of their funds once the bubble burst and cryptocurrency massively plummeted in early 2018.

Not Real Money: According to Roubini, cryptocurrency is a misnomer. To be classified as money, an entity must fulfil certain conditions; namely it must be a unit of account, a means of payment and a stable store of value. Cryptocurrencies are not tied to any goods or services, is not considered fiat money, is not easily scalable and is highly volatile.

The Impossible Triangle: It is impossible for a single entity to possess scalability, security and decentralisation. With crypto’s slow operational rate (Bitcoin’s current rate is five transactions per second), there lies a problem of scalability. All solutions so far to address the issue implies that cryptocurrencies will turn out to be largely concentrated, centralised and therefore not secure.

Inequality: The top three Bitcoin miners control 55% of the mining process. In open-source blockchain platform Ethereum, the top three miners control 61% of the mining process. Roubini recounted an instance where a CEO of a mining company claimed that his firm “controlled 25% of Bitcoin’s mining and 40% of Ethereum.” The massive concentration of resource ownership in the hands of a few miners have led to the emergence of an oligopoly.

Smoke and Mirrors: Roubini pointed out that companies offering no goods, services or softwares were setting up Initial Coin Offerings (ICO) based merely on a white paper. 81% of all ICOs had turned out to be a scam, 61% crypto companies had gone out of business and almost all currencies appeared to be structured like securities while not adhering to the requisite rules.

The Neutral

Legal Implications: McIntosh stated that cryptocurrencies were equally subject to sanctions as regular currencies, in a bid to stem the flow of illegal activities such as illicit financial of drugs and terrorist activities. From initial coin offerings (ICOs) to future crypto products, investors and their interests must be protected at all costs.

A Delicate Balance: In the realm of cryptocurrency, the US government found themselves treading a fine line between looking out for consumers without being heavy-handed and encouraging innovation. Keeping in mind the competitiveness of American companies on a global scale, McIntosh explained that both regulators and regulated parties would be held accountable for their actions. When it came to rapidly advancing technological goods, federal fastidiousness pleased no one.

The world of cryptocurrency is young, mercurial, and holds vast opportunities for unprecedented innovation. Tokenomy is optimistic about the potential of the crypto world, and strives to create a platform for the masses to embrace a token economy.