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Bitcoin (and other cryptocurrencies) - too risky to put into the World Balance Sheet?

27/7/2020

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Can cryptocurrencies ever be recorded in a World Balance Sheet?  Let's look at some of the key features of Bitcoin, as an example of a cryptocurrency:
According to wikipedia:
  • Bitcoin does not have a central authority.[8]
  • There is no central server; the bitcoin network is peer-to-peer.[16]
  • There is no central storage; the bitcoin ledger is distributed.[130]
  • The ledger is public; anybody can store it on their computer.[7]:ch. 1
  • There is no single administrator;[8] the ledger is maintained by a network of equally privileged miners.[7]:ch. 1
  • Anybody can become a miner.[7]:ch. 1
  • The additions to the ledger are maintained through competition. Until a new block is added to the ledger, it is not known which miner will create the block.[7]:ch. 1
  • The issuance of bitcoins is decentralized. They are issued as a reward for the creation of a new block.[105]
  • Anybody can create a new bitcoin address (a bitcoin counterpart of a bank account) without needing any approval.[7]:ch. 1
  • Anybody can send a transaction to the network without needing any approval; the network merely confirms that the transaction is legitimate.

Although Bitcoin is (in theory) decentralised, wikipedia also says:

"As of 2013 just six mining pools controlled 75% of overall bitcoin hashing power.[134] In 2014 mining pool Ghash.io obtained 51% hashing power which raised significant controversies about the safety of the network. The pool has voluntarily capped their hashing power at 39.99% and requested other pools to act responsibly for the benefit of the whole network.[135] c. 2017 over 70% of the hashing power and 90% of transactions were operating from China."

Bitcoin isn't backed by any assets in the real world.  Therefore, even though it is said that their design and implementation will result in a maximum of 21 million Bitcoins ever being created, they are only ever going to have a value determined by owners' and users' perceptions of value, not any related underlying value of real assets in the real world.  This makes them even more ethereal than any national currency anywhere in the world, which at least has the benefit of some asset backing (albeit on a fractional banking ratio) underwritten by a real-world institution such as a national central bank.

The risks associated with recognising the value of Bitcoins should be fairly obvious from this.  There can be no confidence that their supposed value will continue to exist, and at any point they might become valueless.  There is no authoritative body that can be called upon to take any action to stabilise the value of Bitcoins.  Indeed, there is a risk that any such putative body that purported to be able to do so could be a fictitious body, or a legitimate body acting fraudulently or negligently. 

Exchanging any real-world national currency, or other assets, for Bitcoins represents, therefore, nothing more than pure speculation on the future value of an imaginary asset.  For this reason alone "I'm out!" and I will not be recommending inclusion of any cryptocurrencies in the World Balance Sheet. 

    
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