Harvard university cryptocurrency expert

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The first is that there is no inflation. In fact, oftentimes cryptocurrencies have deflationary dynamics because people can lose their private key [a secure password] and, once the private key is lost, you can never access those cryptocurrencies. On the other hand, you never know when the government will decide to print more currency and create inflationary dynamics.

With cryptocurrency, the [overall] amount that will be created is algorithmically programmed so no one can create more. The other reason is the possibility to control your own funds. As soon as you start using a bank account, credit cards, PayPal, whatever, you depend on an intermediate operator who at any time can choose whether or not you can spend your money, or potentially even lose your money.

Increasingly though, people using cryptocurrency are also relying on intermediaries. And, if you have a lot of money in Bitcoin, you want to be very careful about how you secure your private key because anyone who gets access to your private key will be able to spend your money. There was a discussion about the fees that we pay to banks and being able to make microtransactions with no fees.

Now only large transactions make sense, and fees are actually increasing because the networks are becoming saturated, and too many people want to do transactions. This creates competition, and if you want your transaction to be processed before others, then you have to pay higher transaction fees. The mining protocol is designed to make sure that the higher the value of the cryptocurrency, the more secure the system will be.

In order to create a block which increases security , you need to find the solution to a mathematical problem. People try to solve the problem because they want to retrieve the mining reward, which is the new Bitcoins that are generated with every block.

The difficulty of the problem depends on the speed at which the network finds a solution, and the goal is that every 10 minutes someone finds the solution, on average. If there are very few people in the network, the problem is easy; otherwise it will take too long to find a solution. If more people are trying to find a solution, the difficulty will have to increase.

There is a trade-off with how expensive it is to mine. So, as the price of Bitcoin increases, more people join the mining game because they will gain more by finding the block than they will spend on electricity to find it. So there is this load balancing that happens: As the network grows, the difficulty increases; but the network grows because the value of the cryptocurrency grows.

That means the difficulty of the problem decreases. Because it decreased, more people will come, maintaining this equilibrium between energy consumption and the value of the cryptocurrency. But now, because people have become aware of the ecological impact, they are coming up with alternative consensus protocols that will provide at least the same level of security without requiring all this energy consumption. DE FILIPPI: I would say one of the only ways that Bitcoin is being used is to send Bitcoin — you need to spend some Bitcoin in order to send some Bitcoin, on transaction fees to buy other cryptocurrencies on the cryptocurrency exchanges.

Good genes are nice, but joy is better Is cryptocurrency the future of global banking and trade, or a sketchy payment and investment vehicle favored by scammers and speculators, criminal organizations, and any individual or entity shut out of Western banking systems, like North Korea? The jury is still out.

One thing that is clear, however, is that the cryptocurrency market continues to grow as its popularity has become more mainstream since Even many once-skeptical institutional investors have come around after seeing some of the mind-boggling returns.

But that success may have a price. Calls to rein in the industry are at fever pitch. It banned trading them in The U. Treasury said this week it will sanction a cryptocurrency exchange for the first time for facilitating ransomware payments. And the U. Securities and Exchange Commission is also pushing for greater enforcement.

Interview has been edited for clarity and length. What does the landscape look like today? KOMINERS: Those numbers sound huge, but there are actually many, many more than that because lots of crypto products are not currencies and lots of cryptocurrencies are too small to be part of mainstream exchanges. Many crypto products are effectively just tokens.

Sometimes these are representative of ownership in decentralized autonomous organizations, which are organizations that share governance rights and returns to a committee of participants by allocating them tokens — a bit like stock shares. There are project-specific tokens used in specific online games or among individual communities.

There are NFTs, which are unique non-fungible tokens that have been used as representing ownership over things like digital artworks. Tons of these are being minted daily at this point. So, there is a very large landscape.

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So, as the price of Bitcoin increases, more people join the mining game because they will gain more by finding the block than they will spend on electricity to find it. So there is this load balancing that happens: As the network grows, the difficulty increases; but the network grows because the value of the cryptocurrency grows. That means the difficulty of the problem decreases. Because it decreased, more people will come, maintaining this equilibrium between energy consumption and the value of the cryptocurrency.

But now, because people have become aware of the ecological impact, they are coming up with alternative consensus protocols that will provide at least the same level of security without requiring all this energy consumption. DE FILIPPI: I would say one of the only ways that Bitcoin is being used is to send Bitcoin — you need to spend some Bitcoin in order to send some Bitcoin, on transaction fees to buy other cryptocurrencies on the cryptocurrency exchanges.

There are three functions of money, a unit of account, a store of value, and a means of payment, and right now Bitcoin is pretty much mostly a store of value. Or is it evidence that cryptocurrency is a gimmick? Gold is not something you use in order to buy stuff. The ecosystem of blockchain technologies is emerging and developing, so there are things like Bitcoin that are pretty much designed to be digital gold. We are slowly starting to understand and explore the different uses of this technology.

It will evolve in many ways that we cannot expect in the same way as the internet has evolved in many ways that we did not expect. But I think the technology is definitely here to stay. What is your assessment of the recent volatility? And then I think it dropped again and then went back up after that. This happens when you have new people coming in, making prices go up. An experienced trader knows exactly when to sell, traditional pump-and-dump strategies.

You have a very visible individual like Elon Musk who can literally pump and dump. On the one hand, you have experienced traders and on the other hand, you have many inexperienced players. In the U. Increasingly, all the cryptocurrency exchanges do not let users do anything unless they KYC themselves. So there is a strong push towards regulation. Initially it was the Wild West and then slowly regulation came in.

The SEC [Securities and Exchange Commission] started to determine what should be regulated as a security and what not. Treasury said this week it will sanction a cryptocurrency exchange for the first time for facilitating ransomware payments. And the U. Securities and Exchange Commission is also pushing for greater enforcement. Interview has been edited for clarity and length. What does the landscape look like today?

KOMINERS: Those numbers sound huge, but there are actually many, many more than that because lots of crypto products are not currencies and lots of cryptocurrencies are too small to be part of mainstream exchanges. Many crypto products are effectively just tokens.

Sometimes these are representative of ownership in decentralized autonomous organizations, which are organizations that share governance rights and returns to a committee of participants by allocating them tokens — a bit like stock shares.

There are project-specific tokens used in specific online games or among individual communities. There are NFTs, which are unique non-fungible tokens that have been used as representing ownership over things like digital artworks. Tons of these are being minted daily at this point. So, there is a very large landscape. The pure currency aspect of it is a huge market on its own, but a drop in the bucket of the total applications of crypto and blockchain technology today.

Is it just the eye-popping returns or is there more to it? But there are also real, practical infrastructure and technology benefits. And people have been considering whether crypto technology can be used to deliver government aid. Right now, if a hacker gains access to your crypto wallet, they can drain it and you may have no recourse.

But the newer waves of wallet technologies and crypto exchanges are thinking hard about all the things consumers expect out of banking products and equities trading accounts. And then, of course, you also need regulation to prevent financial crime and scams, just like we have in other parts of the financial-services industry. A lot of people lost a lot of money in the GameStop and Dogecoin run-ups and crashes.