EDINBURGH — It’s hardly surprising that The Economist is cautioning that cryptocurrencies have fallen far short of their goals. Giddy price swings have deterred traditional financial services firms from proceeding with block-chain projects, while get-rich quick enthusiasts have continued to sign up to trade. Although Bitcoin and other cryptocurrencies have disappointed of late, that doesn’t mean that blockchains don’t have a place in the world, is the over-riding message. Still, don’t bet your life savings in this marketplace. – Jackie Cameron
By Thulasizwe Sithole
Are cryptocurrencies a fad or the future? That’s the big question posed in The Economist, which notes that the price of Bitcoin has fallen from $19,000 in December 2017 to around $7,000. The prices of other cryptocurrencies, which followed it on the way up, have collapsed, too.
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There is no sensible way to reach any particular valuation, but it was not supposed to be this way, notes the financial magazine. “Bitcoin, the first and still the most popular cryptocurrency, began life as a techno-anarchist project to create an online version of cash, a way for people to transact without the possibility of interference from malicious governments or banks.”
A decade on, it is barely used for its intended purpose, it says. “Users must wrestle with complicated software and give up all the consumer protections they are used to. Few vendors accept it. Security is poor. Other cryptocurrencies are used even less.”
With few uses to anchor their value, and little in the way of regulation, cryptocurrencies have instead become a focus for speculation, says The Economist. “Some people have made fortunes as cryptocurrency prices have zoomed and dived; many early punters have cashed out. Others have lost money. It seems unlikely that this latest boom-bust cycle will be the last.”
There is the suggestion that cryptocurrencies aren’t actually currencies. “Economists define a currency as something that can be at once a medium of exchange, a store of value and a unit of account. Lack of adoption and loads of volatility mean that cryptocurrencies satisfy none of those criteria.
“That does not mean they are going to go away (though scrutiny from regulators concerned about the fraud and sharp practice that is rife in the industry may dampen excitement in future). But as things stand there is little reason to think that cryptocurrencies will remain more than an overcomplicated, untrustworthy casino.”
The Economist asks: Can blockchains – the underlying technology that powers cryptocurrencies – do better?
“These are best thought of as an idiosyncratic form of database, in which records are copied among all the system’s users rather than maintained by a central authority, and where entries cannot be altered once written.
“Proponents believe these features can help solve all sorts of problems, from streamlining bank payments and guaranteeing the provenance of medicines to securing property rights and providing unforgeable identity documents for refugees. Nothing to lose but your blockchains.”
Many claims are made by cryptocurrency speculators, who hope that stoking excitement around blockchains will boost the value of their related cryptocurrency holdings, says the global publication. “Yet firms that deploy blockchains often end up throwing out many of the features that make them distinctive. And shuttling data continuously between users makes them slower than conventional databases.”
Some financial services firms that were initially upbeat about cryptocurrencies have given up blockchain project. These include SWIFT, a bank-payment network, and Stripe, an online-payments firm – with both concluding that the costs outweigh the benefits.
“Most other projects are still experimental, though that does not stop wild claims. Sierra Leone, for instance, was widely reported to have conducted a ‘blockchain-powered’ election earlier this year. It had not.”
Just because blockchains have been overhyped does not mean they are useless, says The Economist.
“Their ability to bind their users into an agreed way of working may prove helpful in arenas where there is no central authority, such as international trade. But they are no panacea against the usual dangers of large technology projects: cost, complexity and overcooked expectations.
“Cryptocurrencies have fallen far short of their ambitious goals. Blockchain advocates have yet to prove that the underlying technology can live up to the grand claims made for it,” it adds.
