Alen Tsyvinski of Yale University assessed that crypto assets have reached the development stage after blockchain applications gained traction from market activists.
Regulators around the world are following up on one sector, namely crypto assets. The Chinese government has banned the circulation of cryptocurrencies while the United States (US) is still considering what decisions will be taken to curb the crypto assets.
Meanwhile, the Bank of England is developing capital requirements for the financial institutions that host it. However, with the consideration of continuous losses, regulation is very important for its long-term prospects.
The Existence of Blockchain as Security and Revolutionary
The development of the crypto market begins with what is best described as the “product innovation” stage. Blockchain technology allows people to earn money and how to create it in new ways. This results in highly visible applications, such as virtual currency and tokenized artwork.
Blockchain also enables less glamorous innovations in various fields. From tracking container shipments to improving the integrity of health care records.
Will the impact of blockchain be revolutionary? For Tsyvinski it depends on the perspective of investors in interpreting the meaning of “revolution”. For example, Robert Gordon of Northwestern University questioned whether the impact of newer technological innovations would be as far-reaching as previous breakthroughs.
Like have smartphones proved as important as electricity? Will e-commerce be as transformative as steam power? Can the influence of the internet be compared to radio and telegraph?
To Tsyvinski revolutionary or not, blockchain will undoubtedly have a significant impact on various traditional industries as it spurs the creation of new companies, products and applications. In fact, it already happened. This mainstream of blockchain applications marks the end of the first stage of technology development.
The Potential of Crypto to Become an Asset
Tsyvinski assesses that currently crypto assets are entering the next phase of evolution into investment assets. Cryptocurrencies are already an investment asset with a market capitalization of around USD 2 trillion.
Unfortunately, this achievement is tainted by individuals who commit fraud in the name of crypto assets.
Factors that make crypto trading bad include insider trading scandals, pump-and-dump schemes, and other illegal or fraudulent activities. This is the case for even the “safest” cryptocurrencies, stablecoins, which are supposed to be backed by hard currencies.
Tsyvinski told his Yale colleague Gary B Gorton and US Federal Reserve System Board of Governors member Jeffery Zhang to compare stablecoins to private banknotes that were circulated during the US “free banking era” of 1837-1862. This period is a phase when banks are free to issue their own currency.
With porous regulations, private money is vulnerable to wild price fluctuations and panic. If stablecoins are barely regulated, another crypto market is the Wild West.
This is perhaps the most serious obstacle to the development of the cryptocurrency industry. Clear rules of the game are essential if the industry is to attract significant institutional money.
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