Contrary to crypto enthusiasts' belief that crypto is THE solution to the future monetary system, the?Bank for International Settlements (BIS)?recently concluded that crypto meets only two out of eight goals of the future monetary system, while central bank digital currencies (CBDC) meet all the needs.?
The?report?defined key goals for the monetary system and compared them against three solutions: current infrastructure, crypto, and CBDC. The BIS concluded that the future monetary system goals are fully met by CBDC, while crypto and decentralized finance (DeFi) only partially met the goals.?
Here are the important monetary system goals that are not fulfilled by crypto:??
- Safety and stability: Money has three functions: a store of value, a unit of value, and a medium of exchange. Cryptocurrency is a store of value, evident from traction from millions of users. Cryptocurrency is far from a medium of exchange, due to its limited use in day-to-day payments. However, the biggest limitation is the unit of value. Cryptocurrency, with over 10,000 options, inherent volatility, and heavy reliance on stablecoins, doesn’t provide the stability required for a monetary system.?
- Accountability: The monetary system has public mandates and regulations. The goal is to make key nodes in the system accountable and transparent to users and society. The crypto and DeFi system is pseudo-anonymous, where the validators have no reputation at stake, and are motivated by economic incentives and users do not have to comply with local regulations and public mandates. Recently, we saw a proliferation of centralization in crypto trading activities with heavy reliance on centralized exchanges, which bypassed regulations and minimal supervision, resulting in the loss of billions of dollars and public trust. In other words, crypto and DeFi create a parallel financial system to circumvent the regulation, with no accountability to the general public.?
- Efficiency: The goal of?the monetary system is to provide low-cost, fast payments and throughput. In the cryptosystem, validators are motivated by economic incentives, which inherently limit the capacity of the blockchain, resulting in high congestion and rents leading to costly transactions and new speculative incentives. Most blockchains are working to solve this problem, like Ethereum switching its consensus mechanism from a proof-of-work system to a proof-of-stake system for better throughput. Despite that, popular blockchains are far from ideal to have the best-in-class, low-cost, fast payments and throughput requirements needed for the future monetary system.??
- Integrity: The goal of the system is to avoid and prevent illicit activity such as money-laundering, financing of terrorism, and fraud. The current crypto system has competing blockchains that are not interoperable, by design, and therefore introduce risks of hacking and theft. ‘Cross-chain bridges’, with limited oversight and regulation, were hacked resulting in billions of financial losses. Pseudo-anonymity is prone to abuse by illicit actors, and the DeFi sector is rife with fraud and theft; identification is needed.?
Out of the remaining monetary system goals, the crypto universe does a great job of meeting the needs of adaptability and openness, while partially meeting the needs of inclusion and user control over data.??
Author:
Baker N.
, Chief Product Officer, Bitt
Asesor para la transformación digital EdTech. Ayudo a definir estrategias para rentabilizar el conocimiento de cada organización.
1 年To begin with, fiat money, whether in paper or digital form, is fiduciary, based on trust. From a political-economic perspective, this would fall within what Rousseau defined as the social contract. People relinquish a portion of their freedom to live in society, but this surrender is subject to the rule of law (the constitution). If this is broken or not upheld by the politicians in power, this commitment is lost, and trust disappears. It has happened before in the history of Europe, with one currency for paying taxes and another for business. The advent of CBDCs sidelines commercial banks as the last-mile solution for distributing money in the trilemma of money. The model of irregular bank deposits disappears; it is no longer necessary, and its development shifts the risks of convertibility to the financial system. This makes it highly likely that banks as we know them now will disappear (the banking business model defined based on deposit management) since that distribution role in a CBDC is no longer needed. Additionally, it deprives the state of the ability to increase its revenue and management. In this context, cryptocurrencies cease to be a problem for banking and start to become an interesting opportunity.
Asesor para la transformación digital EdTech. Ayudo a definir estrategias para rentabilizar el conocimiento de cada organización.
1 年I think this could be interesting. https://medium.com/p/bb4ca4b3155f
Author of the Theory of Creating Blockchain-based Cash for CBDCs, Stablecoins and Cryptocurrencies. Creator of Cryptobanknotes: Technology, Production Features and Rules of Cash Circulation.
2 年You can not build an attack or defense on two or three examples. Nothing excludes the fact that certain critical events in the crypto world are “helped from outside”. This applies to the fall of TerraUSD, Luna and even Bitcoin. This is tantamount to drawing any conclusions about the soundness of central bank money from the mark of the Kaiser's Germany of the twenties of the last century or the modern Venezuelan Bolívar. History convincingly shows that there is much more hidden ice under the waterline of a financial iceberg than at its top.