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The Age of Cryptocurrencies: Is This the End of Money?
sees a big split in how blockchain-based digital cryptocurrencies like bitcoin are viewed on Wall Street versus in Silicon Valley. On the East Coast, the idea of a cryptocurrency replacing a fiat currency is still met with skepticism. But in the Valley, they seem “all in.” In this opinion piece he offers his views on this corner of fintech.
I spent the first week of the New Year with a great group of Wharton undergraduates visiting many of our tremendous alumni in the San Francisco Bay Area. To say it felt very different from the East Coast is an understatement. And I am not talking about missing the “bomb cyclone,” which we did.
I am talking about blockchain/bitcoin/cryptocurrencies, which are much more than a speculative Chinese-cum-millennial obsession.
Whereas most people on Wall Street remain skeptical, playing a wait-and-see game, Silicon Valley is all in. Literally every meeting I participated in, from the biggest tech companies to the smallest startups, was rich with enthusiastic and creative crypto conversations. I used to think “fintech” meant the end of physical cash — replaced by mobile payments platforms owned by big multinational firms and currently led by China, in established currencies regulated by national governments and international agreements.
I now wonder whether the ultimate fusion of technology and finance will mean “the end of money,” at least as we have known it for the last millennium. It’s no longer sci-fi to imagine the replacement of dollars and other “fiat money” with open sourced, radically decentralized, deeply encrypted and self-regulating transactions in digital units of exchange that are “mined” rather than issued by central banks.
“It’s no surprise there seem to be many more bitcoin believers on the West Coast.”
I have to admit I went west very much in the Jamie Dimon mindset. The JPMorgan Chase CEO and voice of Wall Street since the financial crisis
famously dismissed bitcoin’s virtual rise in 2017
: “I could care less about bitcoin.” Strip out his typically gruff rhetorical flourishes, and Dimon was making two fundamental points. Dimon’s first point was that “blockchain” — a globally distributed ledger of financial transactions made secure by advanced cryptography and competition among “miners” (computers competing to execute and record transactions, and being compensated for doing so) — has massive upside. But to become central to mainstream commerce, blockchain will have to lose its unregulated open source roots, be managed by a big multinational conglomerate (think some combination of Visa/Mastercard transactions and SWIFT international transfers), and fall under the clear jurisdictions of national governments and international agreements.
or any other “non-fiat Journal Ledger 中文 ,” or cryptoeuros, cryptoyuan, etc. — not bitcoin, ethereum, or any other “non-fiat,” purely “digital” currency that is not issued by central banks. This is because there is literally no underlying value to a bitcoin (“worse than tulips,” to use the oft-cited example of the Dutch “tulip bubble” in the 17th century). In contrast, there is underlying value to a dollar — guaranteed by the U.S. Federal Reserve and tied to the strength of the American economy.
The more I talked with people in the Valley, the less convinced I became of these two points. This is very disconcerting to people like me, steeped in more than 200 years of macroeconomic thought. All the giants (Adam Smith, David Ricardo, John Maynard Keynes, Milton Friedman, Paul Samuelson, and others) not only assumed the centrality of currencies as we have known them. They also valorized money as literally the foundation of a well-functioning economy — both a unit of exchange and a store of value.
In Silicon Valley, there is a healthy disregard for all things Washington, government and regulation — and of course for the status quo. It’s no surprise there seem to be many more bitcoin believers on the West Coast.
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From the Macro to the Personal: Lessons from Five Top Leaders
In this opinion piece, Wharton Dean Geoffrey Garrett writes about critical advice he has received from other leaders – lessons that “have had a massive impact on how I try to lead every day.”
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From mid-2015 to 2017, Vanke, one of China’s largest real estate developers, became embroiled in a drawn-out hostile takeover bid. The battle started when a relatively unknown Chinese activist investor, the Baoneng Group, quietly began to buy up shares of[…]
A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets. Cryptocurrencies are classified as a subset of digital currencies and are also classified as a subset of alternative currencies and virtual currencies.
Bitcoin, created in 2009, was the first decentralized cryptocurrency. Since then, numerous other cryptocurrencies have been created.These are frequently called altcoins, as a blend of alternative coin. Bitcoin and its derivatives use decentralized controlas opposed to centralized electronic money and central banking systems. The decentralized control is related to the use of bitcoin’s blockchain transaction database in the role of a distributed ledger.
Decentralized cryptocurrency is produced by the entire cryptocurrency system collectively, at a rate which is defined when the system is created and which is publicly known. In centralized banking and economic systems such as the Federal Reserve System, corporate boards or governments control the supply of currency by printing units of fiat money or demanding additions to digital banking ledgers. In case of decentralized cryptocurrency, companies or governments cannot produce new units, and have not so far provided backing for other firms, corporate boards or governments control the supply of currency by printing units of fiat money or demanding additions to digital banking ledgers. In case of decentralized cryptocurrency Journal Ledger 中文
As of September 2017, over a thousand cryptocurrency specifications exist; most are similar to and derived from the first fully implemented decentralized cryptocurrency, bitcoin. Within cryptocurrency systems the safety, integrity and balance of ledgers is maintained by a community of mutually distrustful parties referred to as miners: members of the general public using their computers to help validate and timestamp transactions, adding them to the ledger in accordance with a particular timestamping scheme. Miners have a financial incentive to maintain the security of a cryptocurrency ledger.
Most cryptocurrencies are designed to gradually decrease production of currency, placing an ultimate cap on the total amount of currency that will ever be in circulation, mimicking precious metals. Compared with ordinary currencies held by financial institutions or kept as cash on hand, cryptocurrencies can be more difficult for seizure by law enforcement.[1] This difficulty is derived from leveraging cryptographic technologies. A primary example of this new challenge for law enforcement comes from the Silk Road case, where Ulbricht’s bitcoin stash “was held separately and … encrypted.” Cryptocurrencies such as bitcoin are pseudonymous, though additions such as Zerocoin have been suggested, which would allow for true anonymity.
The legal status of cryptocurrencies varies substantially from country to country and is still undefined or changing in many of them. While some countries have explicitly allowed their use and trade, others have banned or restricted it. Likewise, various government agencies, departments, and courts have classified bitcoins differently. China Central Bank banned the handling of bitcoins by financial institutions in China during an extremely fast adoption period in early 2014. In Russia, though cryptocurrencies are legal, it is illegal to actually purchase goods with any currency other than the Russian ruble.
On March 25, 2014, the United States Internal Revenue Service (IRS) ruled that bitcoin will be treated as property for tax purposes as opposed to currency. This means bitcoin will be subject to capital gains tax. One benefit of this ruling is that it clarifies the legality of bitcoin. No longer do investors need to worry that investments in or profit made from bitcoins are illegal or how to report them to the IRS.In a paper published by researchers from Oxford and Warwick, it was shown that bitcoin has some characteristics more like the precious metals market than traditional currencies, hence in agreement with the IRS decision even if based on different reasons.
In response to the IRS ruling, numerous organizations have been created to advocate for consumers. One of the most prominent examples is the Washington, D.C. based Cryptocurrency Alliance, an independent expenditure-only committee (Super PAC), created to raise awareness about cryptocurrencies and blockchain technology.[44]
Legal issues not dealing with governments have also arisen for cryptocurrencies. Coinye, for example, is an altcoin that used rapper Kanye West as its logo without permission. Upon hearing of the release of Coinye, originally called Coinye West, attorneys for Kanye West sent a cease and desist letter to the email operator of Coinye, David P. McEnery Jr. The letter stated that Coinye was willful trademark infringement, unfair competition, cyberpiracy, and dilution and instructed Coinye to stop using the likeness and name of Kanye West. 17th of January 2014 Coinye was closed.
Cryptocurrencies have been compared to pyramid schemes and economic bubbles,[78] such as housing market bubbles.[79] Howard Marks of Oaktree Capital Management stated in 2017 that digital currencies were “nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it”, and compared them to the tulip mania (1637), South Sea Bubble (1720), and dot-com bubble (1999). In October 2017, BlackRock CEO Larry Fink called bitcoin an ‘index of money laundering’.[81] “Bitcoin just shows you how much demand for money laundering there is in the world,” he said.
While cryptocurrencies are digital currencies that are managed through advanced encryption techniques, many governments have taken a cautious approach toward them, fearing their lack of central control and the effects they could have on financial security. Regulators in several countries have warned against cryptocurrency and some have taken concrete regulatory measures to dissuade users. Additionally, many banks do not offer services for cryptocurrencies and can refuse to offer services to virtual-currency companies. While traditional financial products have strong consumer protections in place, there is no intermediary with the power to limit consumer losses if bitcoins are lost or stolen. One of the features cryptocurrency lacks in comparison to credit cards, for example, is consumer protection against fraud, such as chargebacks.
An enormous amount of energy goes into proof-of-work cryptocurrency mining, although cryptocurrency proponents claim it is important to compare it to the consumption of the traditional financial system. Some cryptocurrencies such as Ripple require no mining, and many others use proof-of-stake algorithms, which require far less energy.
There are also purely technical elements to consider. For example, technological advancement in cryptocurrencies such as bitcoin result in high up-front costs to miners in the form of specialized hardware and software. Cryptocurrency transactions are normally irreversible after a number of blocks confirm the transaction. Additionally, cryptocurrency can be permanently lost from local storage due to malware or data loss. This can also happen through the destruction of the physical media, effectively removing lost cryptocurrencies forever from their markets. Journal Ledger 中文
The cryptocurrency community refers to pre-mining, hidden launches, or extreme rewards for the altcoin founders as a deceptive practice, but it can also be used as an inherent part of a digital cryptocurrency’s design, as in the case of Ripple. Pre-mining means currency is generated by the currency’s founders prior to mining code being released to the public(Wikipedia).
The success of some cryptocurrencies has caused multi-level marketing schemes to arise with pseudo cryptocurrencies, such as OneCoin.
Would everyone who believes money is dead please send me the remains?
I’ll honor the corpses the old fashioned way: using them as a medium of exchange for goods and services and good times and happy experiences.
Ask the westcoasters:if you were seriously ill, would you sell your vested stock and your residence, convert to bitwhatever, and leave that as your estate’s sole investment for your children or grandchildren? That’s the ultimate test.
There is Ripplenet,the blockchain backbone of cryptocurrency Ripple, it is now threatening Swift system by playing by the rules, even partially relying on Swift to handle real-time money transfer between banks. RippleNet, which is the company’s latest decentralized global network, is comprising of banks and other financial institutions. SWIFT belongs to he age of Disco music and now we need our new hip hop.
Personally, I would say no. This is by no means the end of money. Although the Blockchain with its main actor bitcoin has gained a place in the market thanks to its decentralized system, the fiduciary currency will never disappear. As the owner of a secure crypto wallet on the union-crypto exchange site, I remain convinced that crypto currencies will never replace the fiat currency. The opinion of Wharton on the corner of the Fintech is still very interesting. Thank you for this article.
Any Sovereign Nation’s freshly printed paper currency, Treasury Bonds, electronic credits, Monopoly Money, Bitcoins, and/or even a silly new US Sovereign Nation platinum coin made out of a few hundred dollars of Platinum and printed (minted) with “One Trillion US Dollars” on the face has little or NO VALUE unless it can be exchanged for something else of real value such as gold, silver, grain, cattle, land, real estate, hotels, casinos, farms, islands, etc.
Certificates of ownership for petroleum, gold, silver, grain, jewels cattle, are items of value at a remote secure location are the same as title to privately owned businesses, movie houses, factories, casinos, hotels, farms, land, ports, refineries, forests, ports, breweries, distilleries, and etc. and these types of (partial) security instruments were the very first paper currencies.
Any and every currency has to be redeemable for something of value, or it loses all of its value. The US Dollar is now essentially only redeemable primarily for existing privately owned US located assets and title to real property assets in the USA that were created by previous US generations instead of (non-existing) Gold from the US Treasury.
Do not tell the Chi Coms that the USA has no plans to repay the money we owe them when their US Treasury bonds become due.
The USA might just print a bunch of fresh million dollar bills and repay those bonds with that newly printed paper “monopoly” money denominated in new million dollar bills. That monopoly money is formally called Fiat Money.
Some examples of printing (Fiat money) Sovereign paper currency to pay for their government activities (such as the USA’s Quantative Easing) are the Zimbabwe Dollar (ZWD), West African CFA (XOF), Tanzanian Shilling (TZS), Sierra Leonean Leone (SLL), Somali Shilling (SOS), Viet Nam Dong (VND), Rwandan Franc (RWF), Nigerian Naira (NGN), Liberian Dollar (LRD), Franc Congolais (CDF), Belarusian Ruble (BYR), Burundian Franc (BIF), Ugandan Shilling (PGX) and of course the Mexican Peso.
Of course these freshly printed paper sovereign nation currencies have absolutely no value, except as novelties.
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