William Essex
William Essex

Cryptocurrencies: threats and opportunities with digital mediums of exchange

Cryptocurrencies are a confidence trick. Their valuations express a market view and very little else; certainly not reference to a store of intrinsic value. But the same could be said of US Dollars, Sterling or any other fiat currency. Whether you put your trust in dollar bills, credit cards or discrete little chunks of code, you’re not buying exposure to a gold standard. We can all kick cans down the road, but can we define the term “reserve currency” without feeling a little uneasy?

There’s a strong negative case in favour of cryptocurrencies. Like the World Wide Web (as we used to call it), Bitcoin was adopted early on by the criminal fraternity. Back in the day, the argument was that the WWW must be more than a fad because criminals are pragmatic: they go for genuinely useful rather than fashionable. We don’t argue that kind of case nowadays; we just call for more regulation. But it’s a valid, grown-up point. Whatever you think of the uses to which it was put, Bitcoin proved an effective enabler on the ‘Silk Road’ (which is, incidentally, a name with more historic resonance for e-traders than, say, ‘The Euro’).Cryptocurrencies also work for the ‘good guys’. They’re an effective remittance mechanism, and they can ease legitimate trade flows by being impervious to national borders. Crucially, they attract innovators. In its weekend edition of 23/24 February 2014, the Financial Times listed Bitcoin (with a market cap of $7bn),...continued

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