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Cryptocurrency Concept Is a 'Fallacy' Says Finnish Central Bank Advisor

“The analysis shows that the concept of a digital currency is a fallacy.”

Using digital currencies synonymously with the term cryptocurrencies, a paper published by the Bank of Finland and written by one of its advisors argues that cryptocurrencies aren’t real forms of money.

According to Aleksi Grym, the central bank’s digitalization advisor, cryptocurrencies are “not currencies at all but rather accounting systems for non-existent assets.”

The “great illusion,” he posits, results from how “poorly understood the concept of money still is” and the rather “confusing choice of terminology” featured in the original white paper authored by bitcoin’s pseudonymous creator, Satoshi Nakamoto.

Zeroing in on the true functions of bitcoin, Grym draws parallels between how bitcoin works and how a traditional bank functions. First, with bitcoin, the accountants in a traditional bank are akin to the miners. Second, the centralized ledger held by banks to record account balances and transactions are akin to the bitcoin blockchain.

As Grym notes:

“The only difference between a cryptocurrency system and a traditional ledger system is that in a cryptocurrency system the ledger is distributed across a network of computers, while a traditional bank maintains the ledger in a centralised computer system. There is, however, no practical difference in what the systems do.”

He goes on to add: “Money, at its essence, is a unit of account.” So while cryptocurrencies may act as an excellent “kind of financial record-keeping device comparable to an account book,” it will neither replace the forms of money currently in existence nor ever become the singular form of money in existence without institutional backing.

Whether the Bank of Finland agrees with Grym is perhaps beside the point; back in 2014, the central bank classified bitcoin as a kind of commodity rather than a currency.

Yet the subject remains one of interest for the institution, having published multiple research papers that explore the multifaceted issues surrounding cryptocurrencies and blockchain.

Finland flag image via Shutterstock

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'Revolutionary': Finland Central Bank Paper Heaps Praise on Bitcoin

Researchers at Finland’s central bank have dubbed bitcoin’s economic system “revolutionary” in a new staff paper.

The paper, released on September 5, constitutes an investigation into the ins and outs of bitcoin’s infrastructure, notably arguing that it constitutes a “monopoly run by a protocol.”

The three authors – Gur Huberman, Jacob Leshno and Ciamac Moallemi – contend that this characteristic offers a degree of protection against manipulation by bad actors by virtue of the protocol-layer dynamics.

The group write:

“Bitcoin is a monopoly run by a protocol, not by a managing organization. Familiar monopolies are run by managing organizations with discretion to determine and then change prices, offerings and rules. Monopolies are often regulated to prevent or at least mitigate their abuse of power.”

Other notable assertions featured in the paper include the argument that, because of this state of affairs, bitcoin itself “cannot be regulated.”

“Bitcoin is not regulated. It cannot be regulated. There is no need to regulate it because as a system it is committed to the protocol as is and the transaction fees it charges the users are determined by the users independently of the miners’ efforts,” the authors state.

Though the document itself states that the views enclosed don’t represent the official stance of the Bank of Finland, the publication is undoubtedly a notable one given the central bank’s involvement with the tech to date.

Last year, it organized a seminar on blockchain that included regulators, local academics and companies in an effort to support local research – a move spurred further along by the government as well. The city of Kouvola in Finland, for example, received €2.4m to test blockchain-powered shipping. 

The paper’s authors closed by advocating for deeper research by other academics.

“[Bitcoin’s] apparent functionality and usefulness should further encourage economists to study this marvelous structure,” the three write.

Image Credit: Kiev.Victor / Shutterstock.com

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