Revolutionizing the creation and transfer of money every few decades, including gold, silver, wildcat banknotes, greenbacks, checks, federal reserve banknotes, credit cards, money market funds, electronic fund transfers, smart cards, digital dollars, etc. there is. Turn over the traditional market. Exchange over 19,000 cryptocurrencies and dozens of crypto assets Created in the last 13 years Represents the latest shiny new financial object in its ongoing story.
Interestingly, however, the general euphoria often associated with technological advances seems to blind investors, legislators and policy makers to the danger signals associated with the crypto industry explosion. Investors and markets are now paying the price. Consider seven of these warning signs that should have been scrutinized, regulated, or at least urged someone to throw a caution flag.
Red flag # 1 — Most money products and financial distribution systems are secured with confidence in governments, central banks, or highly regulated financial intermediaries.
However, since Satoshi Nakamoto posted a message with a link to the white paper on January 3, 2009 and mined the Bitcoin Genesis block, its value is a quarter penny of 2010. It grew from to $ 68,000 in November 2021. .. Bitcoin has no fundamental intrinsic value, is not supported by any kind of government, and has not experienced any interventional economic events that could reasonably explain the increase in value. Understood, all that happened.
Red flag # 2 — When inflation and interest rates reached 13.5% and 21%, respectively, in the early 1980s, securities companies created uninsured money market funds (MMFs) and paid double-digit interest rates to regulated 5.5%. We provided consumers with an alternative. Banks and S & L. As MMF sucks up deposits and increases by about $ 5 trillion over the next decade, banking, securities and money laundering laundry lists are inserted to prevent MMFs from offering such products. I did.
Section 21 Glass-Steagall methodFor example, it was a federal crime for a securities firm to engage in the business of receiving deposits, so everyone was in the spotlight. Legislative and regulatory compromises have been made. Similarly, in the 1990s, there was much debate about the legal status of digital currencies such as Mondex and Digicash, which drew the attention and opposition of institutions such as the Financial Crimes Investigation Network. Cryptocurrencies seemed to pass and largely avoided such scrutiny.
Red flag # 3 — Government benefits from Seigniorage When it casts money. It is the difference between the cost of casting money and its value when it is distributed to the economy. The cost to the consumer is zero. In comparison, cryptocurrencies such as Bitcoin are expensive to mine, with more miners competing with each other without the need to continually acquire additional specialized computing power and reliable energy sources. As you reduce the chances of mining coins, the cost will increase. All of this costs an average of 5 years to mine one Bitcoin. According to one report, About $ 32,000. Someone has to bear the cost somewhere in the chain of ownership, which makes it a tremendously expensive alternative to money and investment.
Red flag # 4 — Solving complex mathematical puzzles (proof of work models) is the key to mining crypto coins. Ironically, mathematical complexity is also the backbone of cryptography that forms the basis of digital signatures, and is almost every form of online security we rely on. The ability of a hacker to break into a computer network is directly proportional to the time, computing power, and knowledge available to do so. Isn’t it logical to carefully consider the business implications of relying on permeating the types of mathematical puzzles that protect data?
Red flag # 5 — according to Recent reports This shows the scale of the energy challenges posed by cryptocurrency mining. The average US home consumes about 900 kWh of electricity per month, compared to about 155,000 kWh of Bitcoin mining. Policy makers do not seem to understand how proof-of-work cryptocurrencies will add significantly to the world’s energy and environmental challenges, but they have finally caught up.
July 15, 2022, letter A recent study by four U.S. Senators and two U.S. Senators to the heads of the Environmental Protection Agency and the Ministry of Energy found that electricity demand from crypto miners in northern New York increased annual electricity bills by hundreds of millions of dollars. It suggests that.
Data also suggest that mining the two largest cryptocurrencies, Bitcoin and Ethereum, has consumed more electricity than last year’s annual rate. Great Britain It produced about 80 million tonnes of carbon dioxide emissions.
Red flag # 6 — The story of Bitcoin and its founder, Satoshi Nakamoto, is unique enough to draw its own attention. But once the industry started producing Dogecoin and Yescoin, it’s hard to imagine that policymakers who understand how money, banks, and commerce work wouldn’t call a timeout. Dogecoin was reportedly created as a “joke” by a software engineer. The market value of the joke is currently $ 9 billion. Jesus coin He sought to replace the morally rude cryptocurrency with the unique advantage of providing global access to Jesus and forgiveness of sins through outsourcing. The founders may have been joking, but the market seems to have missed the joke.
Red flag # 7 — Cryptography is about money and investment — in short, it is the care and supply of other people’s money. For example, the monitoring and centralization of financial services and payment systems, and the identities of persons engaged in or who may own a bank are closely controlled by law. However, the creation, clearing and settlement of crypto assets are not completely regulated. Even more problematic is that these businesses are centralized and managed by people from different parts of the world who do not have to pass the Litmus test to gain the privilege of storing other people’s money. It has always been a disaster recipe.
Sung by Manfred Mann, a rock band from the 1960s Blinded by the light.. In the case of crypto, it seems that happened. Everyone was fascinated by sizzle and forgot to analyze the steak reasonably.
It seems that an assessment of what cryptography is and how it should be regulated to maximize security and stability is finally underway.Warren Buffett famous “Only when the tide is low can we see who is swimming naked.” Policy makers wear sunglasses to identify who is swimming naked and identify the most beneficial elements of the crypto business and its delivery system. It’s never too late to advance the financial system and lead to secure products and networks that benefit consumers.
Thomas P. Vartanian is the author of “200 Years of American Financial Panics: Crashs, Recessions, Depressions and the Technology that Will Change It All” and Executive Director of the Financial Technology & Cyber security Center. His new book, published in February 2023, is “The Unhackable Internet.”