CSA Online Wow. That does sound technical. What’s the benefit of all of this? The first and most obvious is that the system is digital. This means that anyone around the world can use it for financial transactions – all they need is an internet connection. To those of us in the developed world, that may not seem like a big deal. But for the 1.7 billion people around the world without access to a bank account, it’s huge, allowing anyone to send and receive money quickly and efficiently, and store it in a safe place beyond the reach of autocrats or corrupt officials. Which brings us to the second big benefit: it’s decentralized. In practical terms, this means that there’s no central bank or “clearing house” which records and validates the transactions of cryptocurrency; instead, those duties are shared among every computer on the network. That makes it less susceptible to fraud, corruption, manipulation or “shakedowns” by nefarious actors. Again, for those of us used to a high level of economic freedom in our daily lives, this doesn’t sound like such a big deal. But for those living in jurisdictions in which wealth is susceptible to appropriation, or where government manipulates the value of its currency, or where banks or bureaucrats try to limit the kinds or amounts of transactions that you make, that’s a game changer. Well, that sounds positive. Why don’t we all start using it? Hang on, hang on – there are a few downsides. Cryptocurrency was intended to be a replacement for the money that we use to buy and sell goods and services every day. But the value of it can be exceptionally volatile. How can we confidently use cryptocurrency to buy, say, a carton of milk, if the amount which we need to buy that milk changes wildly from day to day, or even from hour to hour? As positive as decentralization is, the lack of regulation can be another drawback. Because there’s no market regulator overseeing cryptocurrencies, they can be ripe targets for scams, insider trading, pumpand-dump schemes and market manipulation. The biggest example of this was the bankruptcy of FTX – the third-largest cryptocurrency exchange in the world – a scandal which vaporized some eight billion dollars of customer wealth in a matter of months. Another potential problem: what if the government (any government) bans it? There are a few reasons to think that they might. One reason is cryptocurrency’s role in facilitating illegal activities such as drugs, money laundering, smuggling, tax evasion and so on. And then there’s the threat that cryptocurrency poses to a government’s power to manage the economy, or control capital outflows. This is why the government of China has banned Bitcoin and other cryptocurrencies, for example. All of this sounds quite complicated … should we even be investing in Bitcoin? That’s a tough question to answer. For now, it’s probably safest to think about cryptocurrency as a financial curiosity. Sure, some intrepid risk-takers and market traders will likely continue to make money as Bitcoin, Ethereum and other cryptocurrencies gyrate wildly in value from month to month and year to year. But for most of us, it’s simply too technical, too volatile and too unregulated an asset to use it as currency or consider it an “investment.” Could this change? You bet. There’s no doubt that Bitcoin and other cryptocurrencies have the potential to completely revolutionize the financial world. One day, they could replace traditional money – and perhaps even traditional banks. One thing of which we can be sure is that we’ll be hearing more about it in the years to come. You can bank on it. CSANews | FALL 2024 | 43
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