“I will call a monetary system the Bitcoin standard, because such a monetary system will very likely be similar to the gold standard,” the author suggests.
“The two standards are similar in that changes in the supply of the anchor of the monetary system are not under the control of any central bank or monetary authority. Changes in the supply of Bitcoin are set deterministically by the algorithm that governs how many new Bitcoins “miners” receive for verifying Bitcoin transactions and adding them to the blockchain. Changes in the world stock of gold were determined by gold discoveries and the invention of new techniques for extracting gold from gold-bearing ores.”
The predictions? Central banks would generally have a lot less room for their business: key interest-rate setting power would vanish thanks to the “virtually costless arbitrage of Bitcoin across countries.”
In other words, bitcoin-holders around the world could actually offset the actions of central banks, and affect the national money supply, just by chasing better returns for themselves.
Hence Weber says that governments and central banks will “take actions” to prevent the new currency from taking over for two reasons.
One is to protect the revenues they bring in from “the ability to almost costlessly create money,” he writes.
The second is to protect their ability to “implement interest policies to affect their domestic economies. Governments would lose the ability to do either or both of these under the Bitcoin standard,” he writes — not an acceptable outcome.
The paper therefore concludes that even if the Bitcoin standard were to come into existence, it would not last long, for two reasons:
“The payments world is changing so rapidly that there will be a technological innovation that provides a potential medium of exchange with the same or greater benefits of Bitcoin or with lower costs. Such an innovation could come either from the private sector or from the government.”
Meanwhile, chairman of the finance department and a professor at New York University Stern School of Business David Yermack has explained Bitcoin’s true value as an investment rather than a standard.
It likely lies in its enabling technology, called blockchain, rather than its potential as a digital currency. Just as the internet transformed the way we share information, blockchain promises to do the same for financial services.
International Business Times explained that this technology works almost like a shared Google Sheets spreadsheet, allowing multiple parties to view, edit and validate a transaction, eliminating the need for a middleman.
Successful tests with mainstream banks such as Citigroup and JPMorgan Chase have shown that blockchain can indeed cut costs and make financial transactions more efficient.
“In 10 years there may be no more stock exchanges and far fewer banks and so forth. All of these things can be made 90 percent cheaper by introducing this technology,” said David Yermack,
“Financial services are going to get a lot cheaper for most people.”
If blockchain continues to gain traction, the magazine explains, everything from buying homes to using debit cards could be drastically different in the near future.
“In an industry that has been extremely resistant to change, the implications for financial institutions that do not adapt to the emerging technology could be devastating,” it finally states.
