European Central Bank (ECB) board member Fabio Panetta told a panel on the future of cryptocurrencies at the 22nd annual meeting of the Bank for International Settlements that crypto assets have been promoted as decentralized alternatives that promise to provide more resilient financial services. However, reality has not fulfilled this promise. The blockchain technology that underpins crypto assets can be slow, energy intensive and not scalable enough. Cryptoassets are less useful in day-to-day transactions due to complex processing and high price volatility.
To address these shortcomings, the crypto ecosystem changed its narrative in favor of a more centralized organizational form emphasizing crypto speculation and quick profits. But recent events have exposed the fragility of the crypto ecosystem, showing how quickly confidence in crypto assets can evaporate. In many ways, this ecosystem reproduces the shortcomings and vulnerabilities that blockchain technology was originally intended to address.
The public sector should take a firm stand to establish a comprehensive regulatory framework that addresses the social and environmental risks associated with crypto, including the use of unsecured crypto assets for speculative purposes. It should also resist calls for state support for cryptocurrencies, which would essentially socialize the risk of cryptocurrencies. Instead, the public sector should focus on contributing to the development of reliable digital settlement assets, including through work on central bank digital currencies.
To address these shortcomings, the crypto ecosystem changed its narrative in favor of a more centralized organizational form emphasizing crypto speculation and quick profits. But recent events have exposed the fragility of the crypto ecosystem, showing how quickly confidence in crypto assets can evaporate. In many ways, this ecosystem reproduces the shortcomings and vulnerabilities that blockchain technology was originally intended to address.
The public sector should take a firm stand to establish a comprehensive regulatory framework that addresses the social and environmental risks associated with crypto, including the use of unsecured crypto assets for speculative purposes. It should also resist calls for state support for cryptocurrencies, which would essentially socialize the risk of cryptocurrencies. Instead, the public sector should focus on contributing to the development of reliable digital settlement assets, including through work on central bank digital currencies.