Tuesday 28 July 2020 9:34 amCFA Institute Talk

The good, the bad and the ugly of the cryptocurrency dream

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Way back in 2014, I debated the merits of bitcoin with cryptocurrency evangelist Andreas Antonopoulos. It was a wonderful, civil and not too disobedient dialogue. I was sceptical, not cynical. Six years later, I remain sceptical but now have a cynical bias.

Let me explain what I see as the good, the bad and the ugly across the cryptocurrency landscape. I won’t cover the blockchain (for that, I have only optimism).


Cryptocurrency: the good

  1. A democratised currency can only be described as good.  
  2. A decentralised currency that cannot be controlled by any — misanthropic, missing or maddening — government leader must be described as good.
  3. A digital currency that does not recognise sovereign borders and so requires no conversion taxation or limitations is good.
  4. A currency for places that do not have a stable or developed one is very beneficial.
  5. Hooray for a currency that is ready, maybe too willing, and able for our global, digital world without all range of account establishment hurdles, capital movement restrictions and other challenges.

If you believe the rule of three, then those five points ought to be more than enough to wipe out the scepticism and initiate our living the crypto dream.

Cryptocurrency: the bad

What if the world fully embraced a cryptocurrency? No more paper money. The social contract that we fear is fraying today would be torn to shreds.

Without delving into what led to our social contract challenges, how would ‘universal sovereign individuals’, based upon their money, be taxed to enable and support a social contract with their schools, police, fire stations and safety nets?

Answer: they could not, I cannot imagine, without creating a violation — breaking the sovereignty — that would tear down the crypto kingdom as it stands. Moreover, governments with social contracts know this and will do whatever it takes to stop any real breakaway from their currencies.

Now, re-visiting the five ‘goods’, because hope and hype is not a strategy, we can lose the first one because a democratised cryptocurrency is kind of fictional. Why? Because today, big controlling hands exert an influence on the cryptocurrencies that exist through mining or any other process.

Cryptocurrencies have not been distributed like some type of universal basic income (UBI). To be sure, introducing a form of cryptocurrency could make for a brilliant UBI, but it would be guaranteed to be controlled by a central, sovereign state actor – so much for that idea.

And, for all those who think crypto is fabulously anonymous, it is not. Hello blockchain – the real dream tech! There is a reason that governments have threatened or begun to remove from circulation larger denominations of paper currencies. Hint: cash is much more anonymous.

Cryptocurrency: the ugly

All paper currencies can be lost or stolen. Ugh! But crypto is not demonstrably more secure. There are big thefts and hacks and people lose their crypto keys all the time (ugh again!).

And, don’t forget the infamous American bank robber Willie Sutton. When asked why he chose banks, Willie allegedly responded “because that’s where the money is”. Well, crypto exchanges are arguably bigger and easier targets than any individual bank today. And exchanges don’t offer complimentary insurance.

As if that isn’t ugly enough, try to stomach these:

  • Cryptocurrencies can be manipulated or schismed – such as the schism in bitcoin’s most notable spin-off, bitcoin cash, in 2018.
  • How would you feel about paying the equivalent of several thousand dollars for a pizza? If a cryptocurrency cannot remain stable, why would buyers/sellers be motivated to use it? Aside from potential illicit applications and maybe for collectibles, there is no use, no purpose. Unless…
  • You view your cryptocurrency as an investment. Maybe just don’t. Investments offer dividends or a yield. Cryptocurrencies have neither. They are… speculations, collectibles? Does the world really need any more private ornaments? And digital gold? Really? That’s nice marketing. But why not just buy gold?

Be careful if you’re crypto dreaming

The sceptical me remains sceptical and not crypto dreaming. You may wish to be careful, too.

Furthermore, the idea of sovereign digital currencies – the stuff of efficiency/effectiveness dreams – could be dangerous, too. Take a moment and think of the temptation to tax, repress, fine or devalue with the proverbial press of a button if there’s any form of centralised control.

Fiat currencies – that is, government issued money – are no panacea, but for me still, today, I’ll take paper or plastic/credit, please, at least until decentralised digital is a reality.


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By Michael S. Falk, CFA, partner at the Focus Consulting Group.

All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images / Travis Wolfe / EyeEm

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