(Commonwealth Union)_Nobel laureate Paul Krugman has warned of an impending endless cryptocurrency winter for blockchain-based initiatives such as Bitcoin and other cryptocurrency networks. In an editorial piece published in the New York Times on December 1, the economist explores the true utility of this technology and how there are already hints of a coming demise.
Krugman questions the true benefit of this technology in light of other centralised options that now work rather effectively. Krugman expressed his scepticism in this regard, saying: “What exactly is the point? Why go to the difficulty and expense of keeping a ledger in many locations and basically hauling that ledger around every time a transaction occurs?”
Based on this, as well as the recent demise of one of the world’s largest cryptocurrency exchanges, FTX, Krugman believes that this crypto winter will result in the complete abandonment of blockchain and crypto technology. He compared it to the Fimbulwinter, a winter that, according to Nordic legend, preceded the end of the world.
According to Krugman, there have been various signals of this abandoning in recent months. As part of its explanation, the economist cites recent write-offs made by corporations such as Maersk and the Australian Stock Exchange for their blockchain-based projects.
Furthermore, Krugman explicitly opposes Bitcoin’s raison d’être, noting that “banks rarely steal their clients’ assets, but crypto institutions are more easily tempted, and high inflation that destroys money’s value normally occurs only during political upheaval.”
In the same vein, Krugman criticises Bitcoin’s proof-of-work (PoW) consensus, estimating the environmental damage to be in the tens of billions of dollars, with no clear advantage other than producing “worthless tokens”.
However, this is a different viewpoint than the one he presented in May 2021. While he did not believe in the foundations of Bitcoin at the time, he was certain that the market was a “religion that can persist endlessly”. He compared cryptocurrencies to the housing bubble and the subprime mortgage crisis in June, saying, “It is a house built not on sand, but on nothing at all.”
Photo Credit: bitcoin.com
England (Commonwealth Union)_ As part of government ambitions to deregulate the City of London and spur a post-Brexit second big boom for financial services, ministers are contemplating loosening regulations put in place to stabilize the banking system following the credit crunch.
In accordance with the ringfencing restrictions, which the UK unilaterally enacted in the aftermath of the 2008 global financial crisis, lenders must keep their high street operations apart from other businesses like investment banking or worldwide operations. The biggest banks in the UK, like Barclays and HSBC, would continue to be ringfenced under the proposed changes, but smaller lenders, like TSB and Santander UK, might not be required to do so.
In order to gradually release some of the cash that has been trapped behind the ringfence, the UK can be made a better location to be a bank, according to Andrew Griffith, the economic secretary to the Treasury. Since January 2019, UK banks with core deposits of more than £25 billion from retail consumers and small companies, including HSBC, Lloyds, NatWest, and Barclays, have been required to retain extra capital to enable them to absorb any future losses in other activities. To safeguard retail banking and customers from potential shocks from other, riskier business operations, the UK government implemented the ringfencing laws.
“We can make the UK a better place to be a bank, to release some of that trapped capital over time around the ringfence,” Treasury economic secretary Andrew Griffith said at a Financial Times banking summit. The measures were intended to prevent the need for another taxpayer-funded bailout of the banking system in the future, but detractors claim that forcing smaller lenders to hold reserves in different parts of the bank to cover potential future losses is discriminatory.
The capital requirements placed on Britain’s high street banks were found to have not harmed competition but may need to be simplified, according to a government-sponsored review of such ringfencing arrangements conducted at the beginning of this year and chaired by Standard Life’s Keith Skeoch.
