An advisor to Finland’s central bank, the Bank of Finland (BoF), has recently published a 17-page report on cryptocurrencies like bitcoin, notably attempting to “show that the concept of a digital currency is a fallacy.”
In the report, titled “The great illusion of digital currencies,” the financial institution’s head of digitalization Aleksi Grym claims that cryptocurrencies aren’t real forms of money, but rather “accounting systems for non-existent assets.”
Per the document, the difference between money and technology has recently become “muddled,” as the concept of money is largely misunderstood. The document reads:
This paper is an attempt at de-muddling our understanding of digital currencies and of money in general. I argue that the concept of digital currency is essentially a fallacy. My argument rests on the observation that digital currencies are actually account based ledger systems and not significantly different from other financial record keeping technology.
In his report, Grym notes that bitcoin miners are akin to accountants on a traditional bank, and that a financial institution’s centralized ledger is akin to the flagship cryptocurrency’s blockchain. He added, however, the latter adds features “relating to cryptography and distributed computing,” which are “unrelated to the fundamental characteristics of money.”
According to him, the only difference between the system cryptocurrencies use and that of a traditional financial institution is that the decentralized ledger is distributed among a network of computers, while there is “no practical difference in what the systems do.”
On whether bitcoin has intrinsic value or not, Grym notes the cryptocurrency “fails to reach its ultimate goal” replacing cash, as its network is “incapable of transferring money.” He added:
Although Bitcoin started out as an intrinsically worthless unit of account, it has gained genuine demand, which is evident in a persistent non-zero market price. It is important to emphasise, however, that this demand has not turned Bitcoin units into money.
Addressing the cryptocurrency’s future, Grym claims there’s no indication it’s set to overtake fiat currencies and the coins and notes system anytime soon, adding that nothing suggests adopting the cryptocurrency “would be an improvement compared to the monetary institutions we have today.”
The central bank advisor also shut down the idea of a central bank digital currency as it would “practically mean bank accounts at the central bank.” Grym isn’t alone in slamming cryptocurrencies, as the Bank for International Settlements (BIS), recently claimed they “promise a lot, but don’t always deliver.”
Per the “bank for central banks,” most cryptocurrencies based on a proof-of-work (PoW) model aren’t able to scale as much as they need to, in order to process the number of transactions other solutions like VISA process on a daily basis.
