Crypto is often referred to as a solution to protect against runaway inflation. Still, experts say their adoption could have a negative effect.
Crypto: A Cure Against Inflation?
Since the onset of inflation, cryptocurrencies are often regarded as an alternative economy that can protect its investors from inflation. In reality, however, Bitcoin would not be as good a protection as advertised. At a conference at the Blockchain Summit in Paris on July 8 in the Palmeraie, five experts debated the need to take crypto with a grain of salt.
Remy Andre Ozcan, President of the French Federation of Blockchain Professionals, Dr. Idriss Aberkane, Joseph Collement, General Counsel at Bitcoin.com, Yves Choueifaty, CEO of Tobam and Pierre Krajewski of the Rousseau Institute gathered to discuss “inflation.” According to them, the benefits of Bitcoin are indisputable. Indeed, the first cryptocurrency can be used to evaluate and pay for goods or services. It is therefore possible to use it as a traditional currency.
At first glance, digital currencies seem like a good alternative to inflation for two reasons:
- Investing in BTC makes it possible to diversify a portfolio and thereby generate less volatility
- Crypto is not based on the traditional financial model. It should therefore withstand inflation
for dr. Idriss Aberkane and Joseph Collement, cryptocurrencies are a good alternative to fiat money, especially because they enjoy a certain popularity among younger generations. However, it is clear that there is a growing convergence between Bitcoin and finance. This is also the one that sent the industry into the crypto winter. The second proposal could therefore become invalid in the long run.
Crypto Could Become a Manipulative Tool for Traditional Finance
However, using Bitcoin can have some drawbacks that are not negligible. Embracing digital currencies to fight inflation could be a trap that would backfire on enthusiasts. Indeed, once approved by governments, they can become a real object of manipulation. CBDCs, controlled by banks, are especially affected.
With CBDCs, the government has complete control over people’s wealth. There is therefore a risk of individual freedoms disappearing. We’ve already seen it in China, where the government blocked some bank accounts after opposition protests. Government enemies who own CBDCs, i.e. anyone, can therefore see their money confiscated very quickly from anywhere in the world and for whatever reason.
Excerpt from Yves Choueifaty’s speech at the Paris Blockchain Week conference
According to Yves Choueifaty, the problem would remain with Bitcoin adoption, which governments could also easily censor or manipulate. Digital currency, easy to generate, could be used for nefarious purposes. Thanks to their abundance, they can also trigger a new type of inflation. For Pierre Krajewski, the opposition of cryptocurrencies to inflation would also depend on the goodwill of central banks that have the power to complicate or even drop their use.
Despite the convergence of Bitcoin and finance, Joseph Collement recalls that cryptocurrencies are far from dominating the world. Indeed, blockchain technology is not yet strong enough to replace traditional currencies.
The blockchain is still too young to meet the needs of all of humanity. In addition, cash is still limited! Now we know how important these are. With the capacities we have, transactions would be limited to 50 per person per day.
Excerpt from Joseph Collement’s Speech at the Paris Blockchain Week Conference
Is crypto ultimately suitable for fighting inflation? It may well turn out to be so, but many years of work is to be expected to make digital currencies and technology more efficient, secure and stand up to its adversaries.
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