Old-time vaudeville star Jimmy Durante’s catchphrase, “Everybody wants ta get inta the act!” well describes the current state of cryptocurrencies. These are forms of electronic money, the accounting and control of which are outside usual banking and government-sanctioned central banking orbits, and for which encryption and anonymity plays a key role.
These are not new. Bitcoin started in 2008. Millions of people reportedly now are owners and users. Additional millions certainly follow its value.
But some developments are new: Federal Reserve Chair Jerome Powell recently issued a cautious statement affirming cryptocurrencies. Minnesota GOP Rep. Tom Emmer has taken an enthusiastic interest in such currencies as do some other elected officials.
The most concrete recent development is the pending IPO of Coinbase, a cryptocurrency company that would be the first as a publicly-traded corporation. Its reputation is clouded by reports of accountholders who saw hundreds of thousands of dollars disappear from their accounts. But the company says these losses were due to lax security of account numbers and passwords by the depositors and not from any misstep by of Coinbase. The IPO is expected to be successful. Expectations are that Coinbase will assume a significant role in payments systems.
Traditional credit cards such as Visa and Mastercard, entrenched within traditional banking systems, are running scared. They have held — and abused — monopoly positions for decades. PayPal and other new competitors already have eroded their power. Cryptocurrencies will hurt them further.
I am sure Powell is right that cryptocurrencies, or features of their technologies, will grow as payment platforms. Yet history also demonstrates there will likely be major hiccups along the way. Unbreakable codes, like computer security systems and “impenetrable,” tank armor, always get broken into or penetrated. Much of the attraction of cryptocurrencies is their opaqueness and hence their utility in helping users evade taxes and launder money. Those very features will also make it hard to solve any inevitable electronic heists.
Enthusiasts argue that criminal uses of cryptocurrencies…