Letter: Look beyond the realm of exchanges for the true promise of cryptos

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Hyun Song Shin rightly points out the risks to financial stability posed by crypto’s dominance over the oligopoly of brokerages and exchanges (Opinion, Dec. 17).

There is a legitimate debate about the merits of isolating crypto from the banking system, as proposed by the Bank for International Settlements, versus bringing cryptocurrency brokers and exchanges into the regulatory perimeter, such as the offers the United States Securities and Exchange Commission. However, Shin stands on less solid ground in saying that cryptocurrencies have no economic value.

The argument that crypto is a purely speculative asset is premature. The technology is in its infancy. Automobiles were a novelty before the Model T; personal computers were the toy of enthusiasts before the IBM 5150 model, and so on. It takes time to discover the useful applications of a new technology. Additionally, we have found that bitcoin enables individuals in places like Venezuela and China to store wealth beyond the reach of a predatory state. This certainly counts as an economically worthwhile application.

The most promising features of blockchain technology, from an economic value perspective, may lie outside of trading and speculation. For example, algorithmic smart contracts combined with zero-knowledge blockchain proofs open up opportunities for improved auctions, insurance, transaction processing, and even regulatory oversight.

Web3 applications on blockchains can create a new gaming and social media ecosystem that allows individuals to exercise greater control over their online engagements and information.

Finally, the threat of cryptocurrency competition has motivated central bank and commercial bank oligopoly to start innovating with central bank digital currencies. This alone can generate a high enough social return on cryptocurrencies to justify their existence.

Daniel Aronoff Research Scientist, MITCambridge, MA, USA

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