Many of the world’s regulators are racking their brains on how to come up with relevant rules that could curb crypto’s dark uses without hampering the industry’s growth. However, the Bank of Finland released a report that has been described as a scathing attack on these digital currencies. According to its author, the concept of cryptocurrency is a fallacy since currency cannot be digitized.
Money Can’t Exist Without Institutional Backing, Finnish Central Bank Advisor Says
The Bank of Finland, recently, published a paper that had the crypto community reacting because it, basically, undermined the level of legitimacy achieved in the financial world by well-established cryptos such as Bitcoin. Authored by Aleksi Grym, one of the bank’s advisors, the paper concluded that cryptocurrency is not a form of money because the concept it is based on is a fallacy.
In the paper, Grym concluded that:
“The story of Bitcoin becoming an actual monetary unit is based on the false perception that money could exist in a single form, such as coins, and without institutional backing. In reality, however, currency exists as both coins and banknotes, and has circulated alongside various forms of scriptural money throughout history. Replacing coins with a digital version does not mean other forms of money would go out of existence.”
Cryptos Just Accounting Systems
As far as Grym is concerned, cryptocurrencies can only be considered as accounting systems. He went on to conclude that these systems are actually tracking non-existent assets since digital currencies such as Bitcoin do not have any intrinsic value, to begin with.
“The concept of digital currency is therefore a fallacy, as currency cannot be digitised. When money is digital, it takes the form of account balances… Cryptocurrencies, therefore, are essentially accounting systems for non-existent assets.”
While the blockchain technology behind cryptocurrencies is certainly new, it does not affect the fact that it is merely a record keeping system. To Grym’s eyes, keeping multiple copies of a ledger, which is the technique used in decentralized ledger technologies (DLT), does not change the fact of its record-keeping function.
He stated that:
“For all intents and purposes, that ledger is a centralised ledger. The fact that there are multiple synchronised copies of it, distributed across a network, is irrelevant, as each one has the same data.”
Despite being intrinsically worthless, Grym admitted that the demand for Bitcoin is real, which is propping up its price. There are a number of possible reasons why people have been buying Bitcoin such as its branding effect, feeling of security against real or imagined oppression by the state, the state of belonging to a community or even for use in criminal activities.
Regardless of their motivation to get hold of the crypto, however, Grym emphasized that “this demand has not turned Bitcoin units into money.”
It is yet unclear if the Bank of Finland’s position on cryptocurrency matches that of Aleksi Grym’s conclusions. However, the paper carried a warning, which states that the opinions in the article do not necessarily reflect the bank’s position.