Cryptocurrency Labeled a ‘Fallacy’ as Bank of Finland Releases Grim View of Digital Assets
Europe seems to be split when it comes to cryptocurrencies. On the negative side of the spectrum is the Bank of Finland, which has labeled digital currency a “fallacy” in a new research paper.
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The E.U. is Generally Pro Bitcoin
Recently, a research paper from the European Parliament entitled “Virtual Currencies and Central Banks Monetary Policy: Challenges Ahead” was published to address and tackle the challenges cryptocurrencies presented. The authors of the paper referred to digital assets as “relatively safe, transparent and quick,” and it was believed that this new attitude would ease regulations and give rise to a new breed of crypto users.
The report states:
“Financial regulators may dislike VCs because of their anonymity or cross-border circulation. Such concerns may be legitimate in some instances, but must not be generalized. In most cases, transactions in VCs result from the free business choices of economic agents and, therefore, should be treated by regulators as any other financial transaction or instrument – that is, proportionally to their market importance, complexity and associated risks… Given their global, trans-border character, it is recommended that regulations concerning VCs be harmonized across jurisdictions.”
Skeptical Fin Emerges… Grim Is Grim on Bitcoin and Kin
It appears not all E.U. member-states are as accommodating toward digital currencies. Officials at the Bank of Finland have released their own paper that reads particularly harshly on bitcoin and cryptocurrencies generally. Their position is not left to the imagination from the title — The Great Illusion of Digital Currencies — onwards.
One of the more interesting points made by the authors is that cryptocurrencies are far from constituting money. They argue cryptos are manifestations of blockchains, and no different to current record keeping systems used in accounting to keep track of things. Decentralization is not an inherently interesting feature nor functionally significant, argues the author and Adviser on Digitalization and Head of the Digital Central Bank in the Financial Stability and Statistics Department, Aleksi Grim:
“For all intents and purposes, that ledger is a centralised ledger. The fact that there are multiple synchronised copies of it, distributed across a network, is irrelevant, as each one has the same data.”
What Are You Trying to Say?
Where this paper largely differs from the E.U. report is that it is not meant for educational purposes. It is an academic examination of the technology underpinning cryptocurrencies and their fundamental nature. A scathing review in parts, it staunchly argues that cryptocurrencies, by any definition of money, are not money. That viewpoint pits Finland against much of Europe.
One of the arguments made suggesting digital currencies do not constitute money is that they are not used widely as a medium of exchange. The paper identifies secondary market speculation as bitcoin’s primary “use case”. One can’t help but wonder what inherent principles of digital assets become defied if they start becoming accepted as means of payment. In other words, does their essentially marginal use mean they do not constitute money? Does that — and their fundamental nature — change if they attain mainstream adoption?
Anti-crypto sentiment, when eloquently expressed, makes for interesting reading. If cryptocurrencies achieve nothing else, they will have presented our societies with a renewed interest in the definition of money.
Have your say. Do you agree with some of Grim’s points? Could you counter the views of the Bank of Finland?
Images via Pixabay