Cryptocurrency, earthquake necessary? – Jonathan Katzenelenbogen

This is an expert, rationale, and unbiased analysis of the already raging battle between governments, banks, and fast-growing cryptocurrencies. There are pros and cons to any emerging champion triumphant in our global financial system, and Jonathan Katzenelbogen, who wrote for The Daily Friend, compiled them all. If you are an advocate of the least authoritarian model possible, a “handful” of cryptocurrency seems more valuable than a dash of cash in the bank. As you’ll see, both metaphors are relevant. While cryptocurrencies are highly versatile, managing them is not for the hobbyist; It is fickle and difficult to regulate, and a breakdown would be devastating. Even for libertarians, regulation has a positive side and can help stabilize things. Then again, given how banks and governments actually rule our lives, the viable alternative is tempting. Read on for a fascinating and logical assessment that begins with the powerful illustrative story of a Ukrainian refugee… – Chris Bateman

The battle over cryptocurrency. Governments and Banks vs. Startups

By Jonathan Katzenelbogen*

On the morning of the Russian invasion last month, a 20-year-old Ukrainian fled his home with a USB stick and a passcode. These gave him access to $2,000 in Bitcoin.

Jonathan Katzenelnbogen. Image published with permission from The Daily Friend.

Since there was an escape on Ukrainian banks after the invasion, he could not easily access his bank account. He exchanged bitcoin for Polish zloty on an online exchange. This was used to pay for a bus out of the country and a hostel bed for him and his girlfriend in Poland. In Poland, he was able to access his bitcoin through a number of ATMs and make direct payments through an online network.

Those standing in line at Ukrainian banks were able to withdraw only a limited amount and in the days after the invasion many ATMs ran out of cash.

This story makes a compelling case for holding at least some cryptocurrency, especially in a country that you might have to flee from, that has strict exchange controls, high inflation rates, and can have bank payments. But the fast-growing world of cryptocurrency and its derivatives is not for beginners.

As it becomes easier to operate in this world, these types of assets will gain much more traction, and disruption on a massive scale is promising. There are increasing signs of a battle between the establishment of major banks, central banks and governments on the one hand, and the emerging world of crypto finance on the other. Commercial banks could find themselves replaced by new means of borrowing and paying with digital currencies. Meanwhile, central banks and major banks may face an existential crisis. The existing financial system is faltering in its efforts to find a response.

There should be an open question as to when other countries might follow China’s lead in banning cryptocurrencies. Last September, China banned its citizens from mining, holding and trading cryptocurrencies. China’s central bank said the campaign was necessary to help prevent financial crimes, maintain capital controls and ensure stability. This is a useful test case to see if this harsh response is actually killing the use of cryptocurrencies in a country.

Jamie Dimon, CEO of one of the world’s largest banks, JPMorgan Chase, discounts cryptocurrencies as “tokens” because they are not backed by the government. But cryptocurrencies essentially meet the three criteria needed for a tool to be considered as cash. Admittedly, everything is achieved with difficulty. Bitcoin is volatile. It is about 40 percent from its record high against the US dollar in November of last year. As a store of value, you may be less desirable due to volatility, but this changes with “stablecoins,” which are tied to a currency or commodity. Cryptocurrencies are a medium of exchange, although they generally lack the ease of use of fiat currencies. Finally, it is a unit of account. They enjoy greater global acceptance. Bitcoin is legal tender in El Salvador and the world of cryptocurrency is growing.

Last week, Peter Thiel, founder of Paypal, targeted the “financial aging government” of a “hate factory” to undermine Bitcoin, warning that they would pay the consequences. Banks and central banks will have to aggressively defend their territory. The more they try to ban or suppress private cryptocurrencies, the more likely these assets will become desirable. The less it is, the more currencies and digital assets will flourish and contribute to a low-cost and seamless payment system.

Many financial institutions are now acting as intermediaries to distribute digital assets; There are crypto-exchange funds, and some banks will help you buy digital assets. But this new world is difficult to control because its assets live in a distributed digital ledger – the blockchain – which cannot be controlled by any authority. Blockchain software allows the creation of “decentralized autonomous organizations,” which can play other roles. Due to encryption, there is privacy for its owners, and law enforcement and other prying eyes can only access it with great effort. Much can be hidden in the dark recesses of the web.

Governments and central banks have an innate fear that cryptocurrencies will become too big. This is why the US Federal Reserve and the US Treasury have rejected Facebook’s attempt to launch its own digital currency, Libra. With no comprehensive regulatory framework in place, regulators did not like the idea of ​​giving the tech giant the green light to print its own money.

The world of crypto has become more complex since the birth of Bitcoin with the release of Satoshi Nakamoto’s white paper in 2008. With the development, it may become more difficult to regulate it.

A locally published book released last month by Stephen Boeke Sedley and Simon Dingell, Beyond Bitcoin, Decentralized Finance, and the End of Banks, is a good guide to the emerging alternative world of digital finance. What stands out is the rapid innovation of new tools. From the start, volatility was a problem. But there are now stablecoins, which are tied to a fiat currency or commodity. There are also ways to look for the best returns in the crypto world and change from one currency to another.

Boykey Sidley and Dingle predict that central banks will eventually succumb to the inevitable and settle publicly in cryptocurrency.

By contrast, another book recently published in SA, The End of Money by David Bokam, Robin Wilkinson and Christian Strawley, sees cryptocurrencies as a path to further undermining confidence in financial systems. They argue that the end of money has come about because of the erosion of confidence in the current banking and financial system. The cryptocurrencies in the book are seen as flawed in large part because of security flaws, a lack of regulation, and because they facilitate the concealment of illicit activity.

What happens when the obsession around cryptocurrency turns into a panic and one, if not more, digital currencies collapse. This has happened to most asset classes and there is no reason why it could not happen to this class. There will be no bailouts however, huge losses will be incurred globally.

To try to counter the rise of private currencies, central banks could soon issue their own digital currencies. But their intent is to control rather than allow more freedom. If configured as programmable, spending on purchases deemed “bad” can be prevented, taxes and fines deducted automatically, and assistance provided to those in need.

Whether as a result of central bank digital currencies or private cryptocurrencies, Efficient Group chief economist Dawie Roodt expects currencies to consolidate as people move to the ones they trust the most. This could mean much fewer coins in time, which certainly raises questions about the future of the rand, but also the nature of sovereignty. Cryptocurrencies may emerge as the primary challenge to state power.

Jonathan Katzenelbogen is a freelance financial journalist based in Johannesburg. His articles have appeared in DefenseWeb and Politicsweb as well as in a number of external publications. Jonathan has also worked on Business Day and as a television and radio reporter and news reader.

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