Behind bitcoin plunge: Question of trust lingers for cryptocurrency – The Christian Science Monitor

Behind bitcoin plunge: Question of trust lingers for cryptocurrency – The Christian Science Monitor

Blockchain Crypto Market Technology
June 16, 2022 by Coinvasity
10
Link copied.We want to bridge divides to reach everyone.Already a subscriber? Log in to hide ads.A selection of the most viewed stories this week on the Monitor’s website.Every SaturdayHear about special editorial projects, new product information, and upcoming events.OccasionalSelect stories from the Monitor that empower and uplift.Every WeekdayAn update on major political events, candidates, and
wp-header-logo-208.png

Link copied.
We want to bridge divides to reach everyone.
Already a subscriber? Log in to hide ads.
A selection of the most viewed stories this week on the Monitor’s website.
Every Saturday
Hear about special editorial projects, new product information, and upcoming events.
Occasional
Select stories from the Monitor that empower and uplift.
Every Weekday
An update on major political events, candidates, and parties twice a week.
Twice a Week
Stay informed about the latest scientific discoveries & breakthroughs.
Every Tuesday
A weekly digest of Monitor views and insightful commentary on major events.
Every Thursday
Latest book reviews, author interviews, and reading trends.
Every Friday
A weekly update on music, movies, cultural trends, and education solutions.
Every Thursday
The three most recent Christian Science articles with a spiritual perspective.
Every Monday
Loading…

It’s been a red-ink spring for American investors. Stock markets stumbled as inflation, shortages, and war sapped economic optimism. In the world of digital money known as cryptocurrency, the losses were far worse.
Bitcoin has lost more than half its value from November highs. Some digital currencies, designed to be worth $1 at all times, collapsed. 
At root, money or currency is built around trust. Will it be worth its promised value? Cryptocurrency may seem to have failed that test, yet people are turning to it for reasons that go beyond stable value relative to traditional dollars.
Why would anyone trust such shaky money?
For some in cryptocurrency, the volatility has been part of the appeal – when prices are going up rather than down. But one key reason is also that the technology behind it promises a revolution in finance.
Wait a minute, you may protest. I already can move money digitally for free and almost instantly with services like Venmo and Zelle. But that is a bit of an illusion – involving an advance on money that still takes traditional financial institutions hours or even days to transfer. 
The new technology behind cryptocurrency, called blockchain, is a radical departure. This software allows money to be decentralized. Anyone can launch new digital coins without government permission. And in theory, users don’t need to trust any of the players in the system, only the technology and the assets that back it.
It has been a red-ink spring for American investors. Rattled by real-world inflation, shortages, and war, stock markets in the United States and around the world have stumbled. In the world of digital money known as cryptocurrency, the losses are far, far worse.
Bitcoin, the world’s biggest cryptocurrency, has lost more than half its value from November highs. Another digital currency called TerraUSD, designed to be worth $1 at all times, collapsed along with its sister token, Luna. Another so-called stablecoin, DEI, has lost its $1 peg and is now trading around 51 cents. 
Yet, despite all this turmoil, acceptance of cryptocurrency keeps spreading. In May, a law firm based in Dubai, United Arab Emirates, began accepting payment in bitcoin and a few other digital currencies. An Italian restaurant in Wales claimed it was that country’s first restaurant to do the same. Here in Waltham, Massachusetts, Bentley University announced it’s now ready to take tuition payments in cryptocurrency.
At root, money or currency is built around trust. Will it be worth its promised value? Cryptocurrency may seem to have failed that test, yet people are turning to it for reasons that go beyond stable value relative to traditional dollars.
Why would anyone trust such shaky money?
For high rollers interested in investing in cryptocurrency, as opposed to using it as a currency, the volatility has been part of the appeal – at least when prices are going up. But one key reason is also that the software technology behind most cryptocurrencies promises a revolution in finance – through efficient and secure transactions independent of the traditional banking system.
“Finding ways to make [financial transactions] cheaper and faster, and finding ways to make people that are unbanked or under-banked able to send peer-to-peer value to each other, in real time, and for no cost, is going to be a game changer for economies, not just in this country but elsewhere in the world,” Republican Sen. Cynthia Lummis of Wyoming said earlier this month at an online forum of the American Enterprise Institute, a Washington think tank.
Wait a minute, you may protest. I already can move money digitally for free and almost instantly with services like Venmo and Zelle. But that is a bit of an illusion – or a Ferrari front end on a horse-and-buggy back end, as one digital asset banker puts it – involving an advance on money that still takes today’s plodding world of government-issued cash and authorized financial institutions much more time to transfer. 
The so-called blockchain technology behind cryptocurrencies is a radical departure. Instead of relying on central banks, it’s designed to be decentralized. Anyone can launch new digital coins without government permission. And in theory, users don’t need to trust any of the players in the system, only the technology and the assets that back it.
That trust is being sorely tested right now, as some cryptocurrencies continue to fall and as chastened investors take to social media to vent their anger or lament their losses.
It “is definitely a time to question the trustworthiness of a lot in crypto,” says Omid Malekan, a Columbia Business School professor and author of “Re-Architecting Trust,” a book on cryptocurrencies that will be available in July on Amazon. “A lot of those [digital currencies] are more hype than substance. But bitcoin has a unique value proposition because it’s like a currency that has its own built-in transfer mechanism. That feature hasn’t existed before, other than cash.” 
Still, the road to future money is proving quite bumpy.
This past September, El Salvador became the first country to make bitcoin legal tender. By law, businesses had to accept it. And the government worked hard to convince citizens to use it. It created a mobile-phone app that allowed users to trade bitcoin and dollars with no transaction fees. And anyone who downloaded the app got $30 worth of bitcoin, a considerable sum in a poor country like El Salvador. Those who used it to pay at a service station got a discount on gas. 
In the initial rush, half of the nation’s households downloaded the app. But after spending their $30 bonus, nearly two-thirds stopped using it, according to a recent study for the National Bureau of Economic Research. Another fifth of households never even bothered to spend the bonus. This year, virtually no one has downloaded the app. And the government’s vision of giving free digital financial tools to its poor and unbanked people – 9 in 10 Salvadorans don’t have a bank account – has fallen short. 
“The main concern people have … is trust,” says David Argente, an economics professor at Pennsylvania State University and a co-author of the study, which surveyed 1,800 Salvadoran households. They prefer to use dollars; they don’t trust the government’s system or bitcoin itself.
That survey was conducted even before bitcoin and the No. 2 cryptocurrency, Ethereum, made their latest plunge. These wild swings in value discourage consumers from using them to buy things and pay bills. That’s why most Salvadorans – as well as many companies – who receive cryptocurrencies quickly convert them to dollars. Here in the Boston area, Bentley University uses a crypto exchange called Coinbase to automatically make the conversion for a small fee.
The failure of bitcoin to act as a stable currency has attracted investors and consumers to a different kind of cryptocurrency: stablecoins, which are built to maintain the same value as the U.S. dollar or some other traditional currency. The stablecoins that collapsed in May were based on an algorithm, or mathematical set of rules. By contrast, the three major stablecoins backed by actual dollars have held their value, despite intense selling pressure.
The question not yet resolved is who will issue a stablecoin that can gain the world’s trust. It could be one of the current crop, like Tether or USD Coin. It could be another private-sector entity, like a cryptocurrency entrepreneur or a big international bank. Or it could be a central bank like the U.S. Federal Reserve. By one count, 87 nations are researching or testing the idea of issuing their own digital currencies.
Among major economies, China is the furthest along. In the past two years, Beijing gradually has been rolling out its central bank digital currency, called e-CNY and based on the yuan. The European Union’s executive branch plans to propose a digital euro law next year. Here in the U.S., the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology have partnered to find solutions to the technological challenges of creating a stable, safe, and secure digital dollar. 
Big questions remain. For example, how would a central bank guarantee that consumer purchases remain private while building in enough transparency to track criminal financial activity? Will digital coins be mined (created) in an energy-intensive way like bitcoin, which consumed more electricity than Norway last year, or use other protocols that require far less computer power? 
“There hasn’t been too much effort put into upgrading the underlying technology behind bitcoin,” says Christian Fioravanti, chief marketing officer and point person for blockchain technology strategy at Mad Energy, a clean-energy company. “It’s old and outdated, and unless a major change is made to upgrade the technology, … people may move to better technologies that are much more futuristic.”
Then there’s the recent plunge in bitcoin and Ethereum, which has dented confidence in cryptocurrencies. What happens if one of these giants, on which layers of other crypto products are based, should collapse?
“Because there’s no intrinsic value, as people begin selling, there’s no place to go except zero, because there’s no collateral to sell,” Thomas Vartanian, executive director of the Financial Technology & Cybersecurity Center, warned at the American Enterprise Institute forum. “So it starts out as an incredibly high-risk endeavor. And that’s fine. That’s absolutely fine. And it may be the future. But the problem is that we’re dealing with something that is highly unregulated and basically an analog of the Wild West.”
Get stories that
empower and uplift daily.
Already a subscriber? Log in to hide ads.
Whether wild or increasingly regulated – as some in Congress are weighing via legislation – the future of money at least in the medium term could turn out to be crowded.
“I don’t think cash will completely disappear,” says Andy Long, chief executive of White Rock Management, a Swiss-based bitcoin mining firm that’s expanding to the U.S. “I don’t think the dollar is going away. I think there will be a dollar [digital] currency. I think bitcoin is not going away, as well. And they’ll coexist.”
Already a subscriber? Login
Monitor journalism changes lives because we open that too-small box that most people think they live in. We believe news can and should expand a sense of identity and possibility beyond narrow conventional expectations.
Our work isn’t possible without your support.
Already a subscriber? Login

Link copied.
We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.
Dear Reader,
About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:
“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”
If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.
But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.
The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.
We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”
If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.
Subscribe to insightful journalism
Already a subscriber? Log in to hide ads.
A selection of the most viewed stories this week on the Monitor’s website.
Every Saturday
Hear about special editorial projects, new product information, and upcoming events.
Occasional
Select stories from the Monitor that empower and uplift.
Every Weekday
An update on major political events, candidates, and parties twice a week.
Twice a Week
Stay informed about the latest scientific discoveries & breakthroughs.
Every Tuesday
A weekly digest of Monitor views and insightful commentary on major events.
Every Thursday
Latest book reviews, author interviews, and reading trends.
Every Friday
A weekly update on music, movies, cultural trends, and education solutions.
Every Thursday
The three most recent Christian Science articles with a spiritual perspective.
Every Monday
Follow us:
Your subscription to The Christian Science Monitor has expired. You can renew your subscription or continue to use the site without a subscription.
Return to the free version of the site
If you have questions about your account, please contact customer service or call us at 1-617-450-2300.
This message will appear once per week unless you renew or log out.
Your session to The Christian Science Monitor has expired. We logged you out.
Return to the free version of the site
If you have questions about your account, please contact customer service or call us at 1-617-450-2300.
You don’t have a Christian Science Monitor subscription yet.
Return to the free version of the site
If you have questions about your account, please contact customer service or call us at 1-617-450-2300.

source

Add a comment