Fed governor Waller says crypto ecosystem has distinct parts with varying potential
The parts that make up the cryptocurrency ecosystem are not all the same, US Federal Reserve Chairman Christopher Waller said at a conference on Feb. 10. He had clear preferences among the three elements of the ecosystem that he identified.
Waller was invited by the Global Interdependence Center to the conference “Digital Money, Decentralized Finance and the Mystery of Cryptography”. He looked at crypto assets, blockchain technology, and trading technologies such as smart contracts and tokenization separately.
Waller focused on the wider application of crypto technology. Research is underway to apply distributed ledger technology to “a wide range of data management tasks.” Smart contracts can be applied to non-cryptocurrency assets, and tokenization combined with data stores can protect privacy without facilitating money laundering. Waller went on to say:
“While these technological developments are still in their infancy, they have potential applications outside of the crypto ecosystem that could lead to significant productivity gains in other industries.”
The main part of Waller’s speech was devoted to crypto assets. He compares crypto assets, which he says have no intrinsic value, to a commodity – corn – and uses economic theory to explain that objects with no intrinsic value can sell for a positive price due to the “social invention of money.” But there is an inherent problem, he added:
“What if one day the beliefs change and I no longer believe that someone will pay me for this object in the future? Then I obviously don’t have to pay anything for it today, so its price tends to zero. […] However, if you buy crypto assets and at some point the price drops to zero, don’t be surprised and don’t expect taxpayers to socialize your losses.”
Waller noted that even sophisticated institutional investors lost money during the cryptocurrency winter.
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A clear understanding of the differences between parts of the crypto ecosystem will help ensure that regulation reduces the risks of crypto assets without discouraging innovation of “the positive features of the crypto ecosystem,” he concluded.
Waller has previously expressed his cynicism about the US central bank’s digital currency.
Fed Governor Waller speaks today in La Jolla about crypto banking. KYC/AML “should never be ignored” $SI $SBNY pic.twitter.com/VeY5G9eiPD
— AB (@AureliusValue) February 10, 2023
Credit : cointelegraph.com