Cryptonomics - the economics of cryptocurrencies and the battle for control of the world


Wednesday, March 07, 2018/ 10.20 PM / Andrew S Nevin, PhD 

I had a chance to speak about cryptocurrencies at the recent Fintech conference in Lagos organized by the Fintech Association of Nigeria (led by my dear friend Dr Segun Aina and his wonderful colleagues). 

Cryptocurrency - and cryptoeconomics - are pretty complex topics, but the main point from my perspective is we are in uncharted waters. All of us have our entire lives lived in a world where money is created and controlled in a centralized way by monetary authorities - central banks. Commercial banks then also have a role in creating money through fractional banking (they only have to keep a fraction of their liabilities in liquid assets because not everyone wants their money out at the same time). 

This fundamental concept is challenged by cryptocurrencies. Suddenly, money can be created by private actors, and your ownership of this new money is not confirmed by a single counterparty (like when you have a bank account and the official record of what you have is at the bank). Instead, what you have is verified by a distributed system where many participants confirm your holdings against the rules of the game for that cryptocurrency. 

We are only starting to appreciate the immense implications if it is really possible for private actors to create viable money (and monetary systems) over the long-term. That is, will cryptocurrencies survive this speculative bubble period and become a permanent part of the financial ecosystem. And does this means central authorities basically lose their monopoly control over money. And what does this all mean for the economy and investing? Who knows? 

But you can appreciate why this is such a battle - after all, whoever controls the creation of money controls the world. So it is not a big surprise that the emergence of private actors that are trying to create their own money (there are over 1,300 cryptocurrencies and cryptocoins) would cause such controversy and pushback from many people in the traditional financial sector. 

I will soon be having a lot more to say about cryptocurrencies and blockchain. Next month, with some collaborators, I am launching a new website dedicated to exploring these issues specifically for Africa to make sure crypto (if it lasts) and blockchain (which certainly will) benefits Africans. I will let you know when the site is up. 

Here is the full speech:

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