Having reached a certain age, I confess to being a Bitcoin sceptic. I thought today's piece on Twitter by Nouriel Roubini just confirms my anxiety regarding digital currencies. He's no fan!
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Vitalik Buterin, a co-founder of the cryptocurrency Ethereum, argues that no crypto can be at the same time scalable, safe and decentralised. Traditional financial systems are scalable and safe: if your credit card or bank account is hacked or stolen, you are made whole. But they are centralised because participants and assets are verified by trusted institutions. Right now, crypto is neither scalable nor safe. If your private key is stolen or lost, the assets are gone for good.
It isn’t even decentralised. Oligopolistic miners control most bitcoin mining. Many are out of reach of western law enforcement in places such as China, Russia and Belarus, creating a national security nightmare. About 99 per cent of bitcoin trading occurs on centralised exchanges, which may be hackable. Furthermore, the original programmers retain outsized control over their creations. In some cases they act as police, prosecutors and judges, and reverse transactions that are supposed to be immutable. Nor is crypto equitable: a small number of “whales” control much of bitcoin’s value.
This undermines claims that crypto will decentralise finance, provide banking services to the unbanked, or make the poor rich. Blockchain claims to enable cheap money transfers to refugees, but crypto is much more likely to provide cover for scam artists, conmen, tax evaders, criminals, terrorists and human traffickers.
There are a couple of points that one needs to consider with the above account. The first is that there are well understood limitations with bitcoin. It is decentralised, supply is limited and the speed of transactions is extremely slow. The need for forks every time a change is required makes it unwieldly. It stands to reason that if cryptocurrencies are eventually going to fulfil their promise it will be without bitcoin.