Cryptocurrencies fail to fulfil any of its traditional 3 functions: Gavin Jackson

Designed to be completely private and unrelated to governments, can cryptocurrency be the future of money? Well, so far these decentralised electronic tokens have generally not worked very well as currency as they fail to fulfill any of its three traditional functions, says a new book by London-based financial writer Gavin Jackson.

“Their price has been extremely volatile: using them as a means of account would mean changing the price of goods and services daily according to the views of speculators. It also makes them an inadequate store of value: while their price has often rocketed upwards – helping some of the first to mine them or bet on their value to become millionaires – there is little guarantee you will be able to preserve this purchasing power for the future,” writes Jackson. The book “Money in One Lesson: How it Works and Why” was published by Pan Macmillan recently.

The author says cryptos have struggled as a means of exchange, too. The algorithms make them secure but the volume of computing power needed to provide the proof of security has made small transactions prohibitively expensive, says the author.

Besides this, Jackson says the size of the potential market for transactions is limited too. “The majority of people are, for better or worse, unconcerned about their online privacy: outside of illegal drugs and sex work, there has been only limited demand for anonymous currency. For most of the public the values of the cryptocurrencies‘ creators – freedom, secrecy and privacy – are a much lower priority compared to the convenience and reliability of state monies.”

Perhaps the most promising use case for the technology is among activists and protestors facing oppressive governments – those who risk persecution for their activity but need some way of being able to buy and sell the services they need.

Activists, however, have found that cryptocurrencies are not particularly useful, though they may often be better than the alternatives as internet connections can be shut off by the governments.

“Financial transactions need to be accompanied by more traditional messages, using a service that the government can monitor or ban – being able to transfer money secretly is useless if you cannot contact your financial backers secure,” says the book adding that so far its drawbacks mean Bitcoin has mostly been of interest to futurists, libertarians, hobbyists and criminals, as well as speculators and the sort of low-level fraudsters and chancers who accompany every new financial technology.

“Their price spikes upwards for no discernible reason, attracting those who want a means to get rich quick like a kind of high-tech lottery ticket or Beanie Baby. Plenty of hedge funds, too, have tried to sell their clients on the idea that both will profit if the fund trades bitcoin on their behalf.”

Although popular among young investors, investing legends have been vocal against the new asset class. ‘Big Bull’ Rakesh Jhunjhunwala has said cryptos will collapse one day. Charlie Munger, on the other hand, has described it as a “venereal disease” that is beneath contempt.

“At the age of 98, the condescending way in which he (Charlie Munger) talks about cryptocurrency worries me a lot,” top value investor S Naren had recently told when asked about his views on digital tokens.

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