Cryptocurrency

Cryptocurrency is a buzzword today. With their rising popularity and growing uncertainty, cryptocurrencies have been stealing the limelight in recent years. The recent frenzy over the Dogecoin and Ethereum hitting record values are some examples. Since last week, the crypto market is under great pressure as the values drastically declined. All these developments have led to heated discussions over digital currency, its future, and the crypto world. 

Let us understand the views of Stanford University on cryptocurrency. In a webinar, Joseph A Grundfest, professor at the Stanford Law School, had discussed digital currency and what cryptocurrency is going to witness ahead in the coming years. Joseph A Grundfest is a recognized expert on capital markets, corporate governance, and security litigation. He was a former Commissioner of the Securities and Exchange Commission.

A Dependent System and Inapplicable Stable Coins

According to Grundfest, the claim that cryptocurrencies are trustless is not entirely accurate. A trustless system does not require the participants to trust each other or on a third party, an authority, or a controlling system. Whereas the professor sheds light on how cryptocurrency is reliant on the underlying infrastructure powering them. These systems include the Bitcoin network, which is centrally located in China and thus the country can easily impose regulations on the digital currency as they wish. This means it is not independent after all. The University observes how these digital currencies are considered superior to other forms of currencies since they are not dependent or answerable to higher authorities and federal governments. 

The crypto world came up with a new breed of coins called Stable Coins, which was supposed to tackle the volatility issues exhibited by the cryptocurrencies. These Stable Coins rose to huge popularity and were thought to increase the value of the currency. However, Grundfest disagreed with this approach and stated some issues related to it. He felt that the system of stable coins already exists and this approach by the crypto market is kind of recreating it, which appeared irrelevant. Another problem that he pointed out was the risk of fraud concerning these stable coins. As cryptocurrency is not a legal system yet, and thus it becomes difficult to audit and monitor the digital currency, hence there is a higher chance of frauds and corruption.

Facebook Should Revisit its Decisions

Facebook-backed Libra Association was rebranded to Diem last year. Libra launched in 2019, had met with strong backlash as it was considered a threat to the financial system and could risk potential money laundering. According to Stanford University, Libra was established to facilitate international payments and unnecessary transaction costs. Professor Grundfest considered the approach deeply flawed as he did not believe the introduction of another cryptocurrency would solve the transaction cost issues. Further, he suggested how the approach was almost aimed at evading all the traditional banking systems. 

According to Grundfest, Facebook creating its bank as a primary financial institution seemed a better and efficient approach. He opined that the social media giant could have built customized banking systems in different regions and slowly developed trust. These banks would have seemed a better option to minimize transaction costs and addressing regulatory demands.

Looking Ahead

Grundfest believed that the future of cryptocurrency was in question. While its followers are quite ambitious with the capabilities, the critics largely find risks in the digital currency. Nevertheless, Grundfest believed that certain applications could make the cryptocurrency more worthy. One of the applications Grundfest put forth was how digital currency can turn into a better investment for countries with weak currencies.