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Recently, UBS chief economist Paul Donovan said in a video that the "fundamental flaw" inherent in cryptocurrencies is that when demand for them falls, supply generally does not fall with them. He said this means that cryptocurrencies may never function as actual currencies, so they cannot be considered real currencies.
Donovan explained that a "qualified currency" can be used as a stable store of value, that is, they can ensure that the same basket of goods can be purchased tomorrow as today, because the central bank can reduce the supply when the demand for the currency falls, thereby supporting its price. But most cryptocurrencies do not have a mechanism to stop the supply, so when the demand falls, their value will fall, leading to a collapse in purchasing power.
Donovan said:
“When people are absolutely unsure of what they can buy with something tomorrow, they don’t consider it a currency.”
Bitcoin futures are listed on the Chicago Mercantile Exchange alongside contracts for most major currencies, but the difference in daily trading volumes suggests some investors have yet to view Bitcoin as a mature currency.
When bitcoin’s price plunged 11% on Thursday, volume in January bitcoin futures was just over $13,000, while yen futures were trading about six times that amount.
In addition, cryptocurrency has a fatal flaw that prevents it from becoming a real currency: the problem of "double spending".
If the same token is used for two payments, it is a double payment. It is like someone buys a car, pays the seller and drives away, but then asks for the money back and buys another car.
This problem does not exist in the world of physical currency. For example, once you spend gold, it becomes the property of the next person and you cannot reuse it for transactions. The same is true for paper money, and paper money has its own complex anti-counterfeiting technology. Few people can crack and copy counterfeit money, so it is more secure.
But in the world of digital currency, cryptocurrencies can be easily copied or spent twice. This is because the nature of cryptocurrency itself determines that it does not require any central authority to support or supervise its transactions, so it is not the banking system that handles electronic transfers, but the blockchain .
Blockchain is essentially a shared database that records when and where bitcoins are transferred. Cryptocurrency transactions are generally verified by an unaffiliated third party before a delegated transaction is made on the blockchain to exchange currency.
Blockchain has its own ledger technology, which refers to a database that is independently saved and updated by each participant in a large network. The cryptocurrency after the transaction will enter the ledger. In addition, buyers usually have to confirm six times before making a payment. The occurrence of "double payment" means that the blockchain has been manipulated, and the cryptocurrency is only verified once before entering the ledger, and then the cryptocurrency is revoked and used for the next transaction.
However, Nic Carter, co-founder of data company Coin Metrics, said that few people pay immediately after one confirmation, so it is more likely that two blocks used the same funds for transactions, but one of the blocks eventually revoked the transaction.
At present, people are paying close attention to the potential impact of blockchain, and the number of searches on "bitcoin double spending" in Google has surged. But Nic Carter believes that the problem of "double spending" is "not terrible":
"To me, this doesn't mean that the buyers were deceived. I am more inclined to think that this is a bug in the technology or software."
Andreas Antonopoulos, an expert on Bitcoin and blockchain open technology, also said:
“The Bitcoin blockchain is operating exactly as designed and has been operating that way for 12 years. What we saw today was a block reorganization. These operations occur on average every two weeks and are a normal part of the consensus algorithm.”
Mark Cudmore also said that blockchain technology has never been destroyed, but the long transaction confirmation process of cryptocurrency makes it possible for some people to "double pay":
“That’s why having multiple confirmations is a design feature of cryptocurrencies, not a bug. People who use single confirmations often miss the point that six confirmations are the only way to be safe.”
However, he acknowledged that the multiple confirmation process slowed down Bitcoin transactions and somewhat weakened its potential to become a major currency.
Mark Cudmore said that if people are just buying Bitcoin, then the multiple confirmation operation will have little impact; but if people see Bitcoin as the currency of the future, the impact will be huge, but currently only the latter are a minority. (Jinshi Data) |
