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Lorange / IMD special mini-series

‘A room full of people with quill pens sits at the heart of crypto’

1 April 2022 • by Arturo Bris in Lorange / IMD special mini-series

Finance experts debunk myths surrounding crypto’s complexity and energy efficiency, and predict the specific ways in which it is likely to coexist alongside rival currencies. ...

From Ethereum to meme coins, non-fungible tokens (NFTs), stable coins and central bank digital currencies, the crypto world, as painted by a panel of experts hosted by Dr Peter Lorange, Honorary President of IMD, is a colorful one.

It is also a world that can seem daunting to enter, yet it is quite simple in essence, explained Giles Keating, Board Member at Bitcoin Suisse AG:

“Ultimately, the astonishing thing about crypto and blockchain is that it is really just an accounting system,” he said. “Think of a 19th century dark-paneled room in which a lot of people with quill pens fill out entries into paper ledgers. In a sense, that’s all blockchain and crypto really is.”

“The complexity comes from the fact you can build so much from it; an entire system with many of the characteristics we associate with money, an online computer, a decentralized system for banking and the same for governance.”

Blockchain: greatly misunderstood

Confusion also comes when people fail to distinguish between blockchain as a technology and its application, according to Arturo Bris, Professor of Finance at IMD and author of ‘Blockchange!: How to survive the crypto economy’.

“Some of the confusion that exists about blockchain technology today has to do with the original concept of it as a decentralized currency run by a bunch of young guys who wanted to destabilize the world,” he said.

This is not the case today for two reasons: there are many important applications of blockchain that go beyond bitcoin, and there are bitcoin custodians that are very well regulated and that provide safety to the system.

Also, people wrongly think that bitcoin consumes a lot of electricity when in fact this only applies to bitcoin and Ethereum first generation; the other cryptocurrencies and most of the blockchain applications do not.

Bris explained, “Blockchain resolves one of the most nagging problems we have had historically with digital technologies: how to transfer an asset in the digital realm without the need for an intermediary. I can transfer a digital asset in a way that cannot be copied – and that opens up room for new tokens: particularly cryptocurrencies. This is an amazing revolution and creates opportunities to generate new currencies, namely cryptocurrencies.”

US city in motion
“In the US and Europe, as well as many other western countries, we will see an excellent coexistence between the crypto currencies and the central bank digital currencies, the exact form of which we don’t know”
- Giles Keating, Board Member at Bitcoin Suisse AG

A rival to traditional currencies? Only in lower-income countries

“While I’ve eaten a couple of good meals paid for by bitcoin, it’s not about to become a rival to traditional currencies for day-to-day payments. At least not until transaction costs come down and the volatility in price lessens,” said Keating.

But crypto currencies do add support to small economies. “It’s not a coincidence that El Salvador has made bitcoin legal tender,” he added. “What else do they have? Dollars, which are outside their control, and you pay very high transaction costs to move the small sums of money in and out that people living there need to.”

And, as we see the price of transactions in crypto coming down, the set-up in El Salvador will likely become a trend that spreads across borders.

Homemade, country-based currencies are in the making: could it kill crypto?

Major central banks have announced plans to develop their own digital currencies. Until regulatory frameworks for crypto advance further and until we see the exact nature of central banks’ digital currencies, it’s hard to say whether they are set to challenge crypto currencies – but the prediction from Keating is that a dual world is the most likely outcome.

Also, he added, there’s a real range in where central banks are at: “In China, it’s clear the authorities hope to make their own digital currency a replacement for cryptocurrencies. They have already outlawed bitcoin mining. The Bahamas has had its own central bank digital currency for a while, while El Salvador isn’t inventing its own but allowing citizens to use bitcoin.”

His prediction for the rest of the world? “In the US and Europe, as well as many other western countries, we will see an excellent coexistence between the crypto currencies and the central bank digital currencies, the exact form of which we don’t know.”  

However, Keating’s vision is that “central banks’ digital currencies will be used for the everyday transactions – the standard accounting for companies and so on – but that crypto currencies will sit alongside that, both for doing the very extended range of blockchain applications – logistics, shipping etc. – and, ironically, for acting as the kind of engine that drives a lot of banking transactions in dollars, euros or Swiss francs.”

Keating likened this to taking the fossil fuel engine out your car and replacing it with an electric one. “It feels much the same when you drive it, but what’s under the bonnet is much more modern and efficient.”


Arturo Bris

Arturo Bris

Professor of Finance at IMD

Arturo Bris is Professor of Finance at IMD. Since January 2014, he has led the world-renowned IMD World Competitiveness Center. At IMD, Bris directs the Boards and Risks, Strategic Finance, and Navigating Fintech Innovation and Disruption programs. He also previously directed the flagship Advanced Strategic Management program between 2009 and 2013.

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