After this year’s wild market ride and so many failed projects, what might Satoshi Nakamoto’s innovative “Bitcoin: A Peer-to-Peer Electronic Cash System” mean for money and finance in 2019 and beyond?
Satoshi’s innovation – the use of append-only timestamped logs, secured by cryptography, amongst multiple parties, forming consensus on a shared ledger – needs to be taken seriously. The resulting blockchains of data can form widely verifiable peer-to-peer databases.
For any chance of a lasting role in the long evolution of money, though, blockchain applications and crypto assets have to deliver real economic results for users. And while bringing the crypto finance markets within public policy norms is critical, the greatest challenge remains the seriousness of commercial use cases.
A bunch of hype masquerading as fact won’t do it.
What We’ve Learned
Blockchain technology and crypto tokens provide an alternative means to move value on the Internet without relying upon a central intermediary. They promise the potential to lower verification and networking costs, ranging from censorship, privacy, reconciliation and settlement costs to the costs of jump starting and maintaining a network.
These features tie blockchain technology and cryptocurrencies directly to the essential plumbing of the financial sector, which at its core has the role of efficiently moving, allocating and pricing money and risk within an economy. It could lower costs, risks and economic rents in the financial system, which represents 7.5 percent of U.S. GDP.
To do so, though, blockchain technology must address its many technical and commercial challenges – scalability, efficiency, privacy, security, interoperability and governance. Industry reforms and regulations also must bring order to the markets surrounding this technology, especially for crypto exchanges and initial coin offerings.
Any use case’s value proposition needs to be rigorously compared with simply using a traditional data base. In particular, any token offering must address how it will sustainably lower verification or networking costs – how such crypto asset benefits users more than simply using broadly accepted fiat currencies. While money is but a social construct, its history tells us that there are overwhelming network benefits when a currency is widely used and accepted for all three roles of money – as a unit of account, medium of exchange and store of value.
In essence, how might any blockchain technology project or any initial coin offering’s (‘ICO’) proposed token be more than simply a means to raise cheap money from the public? In 2019 and beyond, venture capitalists, large incumbents and crypto investors will likely be more discerning and rigorous in their investments and projects.
Public Policy Frameworks
The crypto finance markets can only gain public confidence and reach their potential by coming within long-established public policy frameworks. As with any other technology, we must guard against illicit activities, such as tax evasion, money laundering, terrorist financing and avoiding sanctions.
We must promote fair and open competition while ensuring for financial stability. We must protect investors and consumers.
While criminals have often exploited the existing financial system for money laundering, cryptocurrencies have given bad actors new ways to conduct old crimes. Dark markets conduct sales of illegal drugs and other contraband using cryptocurrencies. State actors, such as Venezuela, Russia, and Iran have used crypto finance to undermine U.S. policies. Additionally, cryptocurrencies add new challenges to global tax compliance.
What investor protection does exist in crypto markets seems little more than an effort to stay ahead of law enforcement’s and regulators’ attention.
Read the full post at CoinDesk.
Gary Gensler is a Senior Lecturer at the MIT Sloan School of Management and Senior Advisor to the Director of the MIT Media Lab where he is a senior adviser to both the Media Lab’s Digital Currency Initiative and the Ethics and Governance of AI project.