Bitcoin, Ethereum, Litecoin, Dogecoin, Ripple — these nouns proceed to stay fashionable in our on-line world. An off-the-cuff google seek for “Bitcoin” returns about 2.5 billion outcomes, and as cryptocurrency costs have remained risky for the reason that begin of 2022, they maybe want no additional introduction. Their decentralised and unregulated nature has attracted a cut up opinion on their legality with equal numbers for and towards their continued existence (and proliferation). Monetary regulators and financial authorities, nonetheless, stay cautious — justified, to a big extent — out of concern of cash laundering and different unlawful worldwide capital actions. People are likely to concern what they have no idea or can’t management, which is why it’s unsurprising that China, Qatar, Turkey, Bangladesh, Egypt, Morocco and a few 50 different nations have both banned or restricted using cryptocurrencies. Historical past, nonetheless, exhibits us that prohibiting one thing is a sure-fire method of piquing extra curiosity. So, fairly than make one other feeble try at warning the general public, I try and reply a extra pertinent query: Is there a sensible use for cryptocurrencies?

Presently, most cryptocurrencies are used merely as a medium of change for digital transactions. Their sky-high costs have additionally pushed a rising variety of buyers to think about cryptocurrencies as a viable different funding asset. The current crash in cryptocurrency costs, nonetheless, has compelled many to rethink its viability as an funding. In that case, what different function do cryptocurrencies serve?

Since early 2022, Malaysians have been more and more involved (rightfully or in any other case) with the plummeting ringgit towards the US greenback and the Singapore greenback. Varied experiments have proven that volatility within the international change (foreign exchange) markets can, the truth is, be useful to buyers via intelligent development of portfolios. A standard technique to hedging foreign exchange volatility is thru forex derivatives or rebalancing forex portfolios by including gold into the combination. Nonetheless, market accessibility to gold is very restricted. Though there aren’t any worldwide legal guidelines governing gold, home gold markets are extremely regulated. In a current research revealed in The Journal of Threat Finance, I confirmed how the safe-haven and hedging properties of gold could be emulated by together with a spread of cryptocurrencies in a forex portfolio, successfully compensating the investor for extra threat undertaken. Understandably although, this could solely be helpful to a choose group of finance professionals.

Maybe we’d see better mainstream adoption of cryptocurrencies in the event that they had been used because the digital substitute of money saved in e-wallets. Within the present iteration of e-wallets, delicate private identifiers and banking data stay prone to hacking and exploitation if the e-wallet supplier’s safety programs are compromised. The blockchain construction underlying cryptocurrencies and their related cryptographic wallets introduce an extra layer of safety and anonymity, making it much less susceptible to unauthorised entry. This, nonetheless, remains to be a longshot particularly in Malaysia, owing to the present challenges of standard e-wallet use, as highlighted by my esteemed colleague in an earlier piece revealed on this identical column (see “Covid-19 and e-wallet utilization in Malaysia”, The Edge, July 18, 2021)

We might additionally suppose a bit larger. Some nations, resembling El Salvador and the Central African Republic, have formally adopted Bitcoin as their nationwide forex, as a substitute of standard central bank-issued notes. Proponents of the transfer argue that doing so liberates the nation from undue international affect on their economic system for the reason that provide and worth of (crypto)forex will not be decided via centralised coverage and foreign exchange markets. Owing to the decentralised construction of cryptocurrencies, these proponents additionally argue that the worth of the nationwide forex can be market-determined and mirror its true honest worth. Whereas these could theoretically, and to some extent, be virtually true, since cryptocurrencies got here into being, the markets have seen quite a few cases of crypto “whales” (that’s, “market makers”) with enough cash to single-handedly transfer substantial volumes of cryptocurrency instantly, inflicting huge shifts in costs. Up to now, the identities of those “whales” have by no means been decided. So, whereas the nation could also be insulated from exterior political affect, its economic system is prone to nameless market manipulation.

What then, will we do with cryptocurrencies? As a substitute of attempting to extract financial worth or sensible use, a extra worthwhile endeavour can be to discover additional use of the underlying blockchain construction to refine and enhance present (monetary) providers, notably by way of safety and transparency. As using a blockchain construction sometimes requires modifications on the programs as a substitute of the end-user degree, there’ll probably be little to no resistance from customers in its adoption. In spite of everything, in present instances, who wouldn’t admire enhanced safety?

So, the place will we go? As I typically inform my doctoral class, “That, is de facto as much as you.”