What went wrong with crypto?
Crypto is still a new thing. It is not really ‘established’ but it surely has provided some moments.
found the inspiration here and here.
Despite regulatory interventions in the US it is still a novel idea. Behind it all is that it is not linked to any intrinsic value (like gold for instance). Even if it is backed by a currency (like Japanese Yen), it is speculative by nature.
It is hard to see how far the benefits in terms of cross-border trading and payments have penetrated the financial systems. There was a lot of talk about government-issued crypto like the digital yen and the digital pound. Japan has launched a yen-backed crypto but what is the uptake?
Sure enough, there are plenty of scammers and fraud going on. It is still un-regulated business. But that can hardly explain the melt-downs.
““Retail investors are teetering between their fear of missing out on a juicy investment and concerns about the unsavory aspects of crypto and its promoters,” Cornell University economist Eswar Prasad told me. “Such investors will invariably amplify the volatility of crypto prices in both directions, and I think that’s what we are seeing right now.”
What does others say? UAE is really on the cutting edge on this:
I quote: “With nearly 3 million users— around a third of its population — the United Arab Emirates has the world’s highest cryptocurrency adoption rate, by some estimates.
In addition to rolling out one of the world’s most comprehensive crypto regulatory frameworks and the launch of a dirham-backed stablecoin this year, the UAE last week authorized the first global license for Binance, the world’s largest cryptocurrency exchange, within Abu Dhabi Global Market (ADGM), a special economic zone in the Gulf nation’s capital”.
“The UAE’s sovereign wealth funds, estimated to control assets worth $2 trillion, are investing heavily in decentralized digital finance models in a bid to diversify their economies away from fossil fuels, reduce their reliance on the US dollar, and streamline banking and cross-border transactions”
This is vastly different from pure speculative investments. So maybe there is a future outside of the ups-and-downs of crypto.
Individual coin ownership records are stored in a digital ledger or blockchain, which is a computerized database that uses a consensus mechanism to secure transaction records, control the creation of additional coins, and verify the transfer of coin ownership.
Despite the name, which has come to describe many of the fungible blockchain tokens that have been created, cryptocurrencies are not considered to be currencies in the traditional sense, and varying legal treatments have been applied to them in various jurisdictions, including classification as commodities, securities, and currencies. Cryptocurrencies are generally viewed as a distinct asset class in practice.
According to Jan Lansky, a cryptocurrency is a system that meets six conditions:
• The system allows transactions to be performed in which ownership of the cryptographic units is changed. A transaction statement can only be issued by an entity proving the current ownership of these units.
• If two different instructions for changing the ownership of the same cryptographic units are simultaneously entered, the system performs at most one of them
The validity of each cryptocurrency’s coins is provided by a blockchain. A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a hash pointer as a link to a previous block, a timestamp, and transaction data.
The key is still (in my opinion): is it speculative or is there any rational usage for cryptos?
Just to know: A cryptocurrency is a digital currency designed to work through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. However, a type of cryptocurrency called a stablecoin may rely upon government action or legislation to require that a stable value be upheld and maintained
• The system does not require a central authority; its state is maintained through distributed consensus.
• The system keeps an overview of cryptocurrency units and their ownership.
• The system defines whether new cryptocurrency units can be created. If new cryptocurrency units can be created, the system defines the circumstances of their origin and how to determine the ownership of these new units.
• Ownership of cryptocurrency units can be proved exclusively cryptographically.
By design, blockchains are inherently resistant to modification of the data. A blockchain is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”.
For use as a distributed ledger, a blockchain is typically managed by a peer-topeer network collectively adhering to a protocol for validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires collusion of the network majority.