The cryptocurrencies are not successful and Blockchain has yet to find its use

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There are two common models in the technological invention and in its subsequent commercialization. The first is technological progress that gives rise to interests in marketing it. The invention of transistors in the legendary Bell Lab in the 40s (which later earned the three inventors of the Nobel Prize in physics) fits this pattern. It took a while to process the commercial applications of the transistor, starting from the radio, then, powerfully transformative, into the computers. The second is an existing question waiting for a new technology to be invented to meet the need. The invention of the internal combustion engine in the 19th century fits this model. The industrial revolution has led to the proliferation of the demand for a machine capable of supplying rotary energy to move mechanical devices, including the supply of land and water vehicles and, finally, aircraft. The internal combustion engine was the answer.

The technology of the blockchain and its application called Bitcoin, however, came as a single package. It is a digital currency without a central bank, with transactions verified and recorded in a distributed ledger, the blockchain. Together with the package the utopian libertarian clamor also arrived, according to which this is the beginning of a revolution that will make governmental powers obsolete and, in truth, any centralized authority. And it was this clamor, not a commercial success of Bitcoin, which fueled the investment craze, pushing the value of the Bitcoin dollar into the stratosphere, generating a whole series of other cryptocurrencies in the process. In 2017, the intraspirators launched the so-called initial coin offerings that attracted over $ 20 billion in investments, primarily from retail investors, according to the Coinschedule website. From the start of this year, the dollar values ​​of cryptocurrencies have plummeted. The two main cryptocurrencies, Bitcoin and Ether, have collapsed in a more spectacular way, losing up to 70% of their value in dollars, and it seems that even retail investors are those who hurt themselves the most.

So, what will happen to cryptocurrencies?

It is now clear that cryptocurrencies have completely failed in their alleged function of money. The definition of money in the textbook establishes three criteria: it must be able to act as a medium of exchange, deposit of value and unit of account. As many have pointed out, cryptocurrencies have failed to meet all three criteria. & Nbsp; For example, look at the Augustin Carstens conference, general manager at the Bank for International Settlements, released at the University of Goethe on 6 February. Very few daily transactions are conducted with any of the cryptocurrencies, the exceptions are in the so-called dark web where they are used as an anonymous means of trading large transactions, equivalent to suitcases full of unmarked large dollar bills that are favored from drug lords and terrorists. Their vertiginous volatility means that their values ​​are mostly speculative, not for conservation. And the fact that cryptocurrencies continue to define their dollar value underlines how useless they are as units of account.

In addition to fulfilling the criteria of the definition of the textbook, the function of money in a modern economy also depends critically on support and institutional support. Governments must accept it as a tax payment, the market must accept it for debt issuance, there must be a reasonable independent central bank to manage its offer competently to ensure price stability. In other words, the ability of money to perform all its critical economic functions is rooted in a deep sense of social trust guaranteed by public institutions built around a central authority, the government.

The failure of cryptocurrencies reveals that the attempt to eliminate the central authority and to replace it with autonomous and decentralized technology is nothing but an anecdote. & Nbsp; In fact, as Nouriel Roubini, an economist at New York University, has discussed in his testimony to the United States Senate, the ownership and trading models of cryptocurrencies are highly concentrated in the hands of a small group of owners and companies, with over 99% of all transactions taking place in centralized plants. Roubini also stressed that wealth is incredibly highly concentrated in the cryptocurrency universe. The distribution of wealth in Bitcoin property is about twice the distribution of income in South Africa, a country with one of the worst levels of inequality in the world. In other words, instead of a sort of decentralized libertarian utopia, property, transaction and control models reflect a highly centralized and undemocratic operating environment in cryptocurrencies.

If the cryptocurrency as a specific application of blockchain technology was a spectacular failure, what then of the blockchain itself? Once the blockchain and cryptocurrency package is disaggregated, let's go back to the first technology marketing scheme: an invention looking for a valid business application. Because the blockchain was invented to create Bitcoin, so it can do blockchain alone is a matter of exploration. At the moment, nothing has been demonstrated. There are a number of ongoing experiments, and all have direct involvement of the government or regulatory authorities. For example, several Japanese banks have recently launched a "national payment" mobile app called Money Tap based on blockchain technology, but it was made with the formal approval of the Japanese government's Ministry of Finance, whose operations will fall within the normal regulation and financial control of the government. And since sustainable commercial applications of blockchain technology still need to be implemented, today's evaluation of technology is exactly zero. This does not mean that the blockchain is useless. It could be the 21st century transistor, or it could end up in the trash heap of technological inventions that have failed to find a commercial application. We will have to wait and see.

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There are two common models in the technological invention and in its subsequent commercialization. The first is technological progress that gives rise to interests in marketing it. The invention of transistors in the legendary Bell Lab in the 40s (which later earned the three inventors of the Nobel Prize in physics) fits this pattern. It took a while to process the commercial applications of the transistor, starting from the radio, then, powerfully transformative, into the computers. The second is an existing question waiting for a new technology to be invented to meet the need. The invention of the internal combustion engine in the 19th century fits this model. The industrial revolution has led to the proliferation of the demand for a machine capable of supplying rotary energy to move mechanical devices, including the supply of land and water vehicles and, finally, aircraft. The internal combustion engine was the answer.

The technology of the blockchain and its application called Bitcoin, however, came as a single package. It is a digital currency without a central bank, with transactions verified and recorded in a distributed ledger, the blockchain. Together with the package the utopian libertarian clamor also arrived, according to which this is the beginning of a revolution that will make governmental powers obsolete and, in truth, any centralized authority. And it was this clamor, not a commercial success of Bitcoin, which fueled the investment craze, pushing the value of the Bitcoin dollar into the stratosphere, generating a whole series of other cryptocurrencies in the process. In 2017, the intraspirators launched the so-called initial coin offerings that attracted over $ 20 billion in investments, primarily from retail investors, according to the Coinschedule website. From the start of this year, the dollar values ​​of cryptocurrencies have plummeted. The two main cryptocurrencies, Bitcoin and Ether, have collapsed in a more spectacular way, losing up to 70% of their value in dollars, and it seems that even retail investors are those who hurt themselves the most.

So, what will happen to cryptocurrencies?

It is now clear that cryptocurrencies have completely failed in their alleged function of money. The definition of money in the textbook establishes three criteria: it must be able to act as a medium of exchange, deposit of value and unit of account. As many have pointed out, cryptocurrencies have failed to meet all three criteria. For example, see the conference by Augustin Carstens, general manager at the Bank for International Settlements, given at the University of Goethe on 6 February. Very few daily transactions are conducted with any of the cryptocurrencies, the exceptions are the so-called dark network where they are used as an anonymous means of trading large transactions, equivalent to suitcases full of unmarked large dollar bills that are favored from drug lords and terrorists. Their vertiginous volatility means that their values ​​are mostly speculative, not for conservation. And the fact that cryptocurrencies continue to define their dollar value underlines how useless they are as units of account.

In addition to fulfilling the criteria of the definition of the textbook, the function of money in a modern economy also depends critically on support and institutional support. Governments must accept it as a tax payment, the market must accept it for debt issuance, there must be a reasonable independent central bank to manage its offer competently to ensure price stability. In other words, the ability of money to perform all its critical economic functions is rooted in a deep sense of social trust guaranteed by public institutions built around a central authority, the government.

The failure of cryptocurrencies reveals that the attempt to eliminate the central authority and replace it with autonomous and decentralized technology is nothing but a mirage. In fact, as Nouriel Roubini, an economist at New York University, argued in his testimony to the United States Senate, models of ownership and negotiation of cryptocurrencies are highly concentrated in the hands of a small group of owners and companies, with over 99% of all transactions taking place in centralized plants. Roubini also stressed that wealth is incredibly highly concentrated in the cryptocurrency universe. The distribution of wealth in Bitcoin property is about twice the distribution of income in South Africa, a country with one of the worst levels of inequality in the world. In other words, instead of a sort of decentralized libertarian utopia, property, transaction and control models reflect a highly centralized and undemocratic operating environment in cryptocurrencies.

If the cryptocurrency as a specific application of blockchain technology was a spectacular failure, what then of the blockchain itself? Once the blockchain and cryptocurrency package is disaggregated, let's go back to the first technology marketing scheme: an invention looking for a valid business application. Because the blockchain was invented to create Bitcoin, so it can do blockchain alone is a matter of exploration. At the moment, nothing has been demonstrated. There are a number of ongoing experiments, and all have direct involvement of the government or regulatory authorities. For example, several Japanese banks have recently launched a "national payment" mobile app called Money Tap based on blockchain technology, but it was made with the formal approval of the Japanese government's Ministry of Finance, whose operations will fall within the normal regulation and financial control of the government. And since sustainable commercial applications of blockchain technology still need to be implemented, today's evaluation of technology is exactly zero. This does not mean that the blockchain is useless. It could be the 21st century transistor, or it could end up in the trash heap of technological inventions that have failed to find a commercial application. We will have to wait and see.