- The crypto winter is now being harsh day by day.
- It was started by the downfall of Terra, an open-source blockchain protocol that underpins algorithmic stablecoins.
- According to Sam Bankman-Fried, the former CEO of FTX, the virtual coins were unfeasible to value as they produce no cash flow.
The latest collapse of FTX has added more to it. The total market capitalization of cryptocurrencies is down over $2 trillion. In line with the CoinMarketCap, it is 70% low than its peak.
While many are still bullish regarding cryptocurrencies, they believe it must go back to its roots. However, holding bitcoin or other tokens like that in offline digital wallets, is associated with risks. Somehow, if the possessor loses their encryption key or gives coins to the wrong address, then they have no option.
Also, cryptocurrencies are extremely unstable to use as money. To limit the instability, crypto enthusiasts introduced stablecoins. However, Terra’s downfall shows that stablecoins aren’t like their name.
According to Sam Bankman-Fried, the former CEO of FTX, the virtual coins were unfeasible to value as they produce no cash flow. He also highlighted the unsuitably slow speed of transactions on the Ethereum network. Compared to this, Bitcoin is much better.
From Bitcoin to FTX
Bitcoin uses a “proof of work” consensus mechanism to verify the transactions. But the process takes a lot of energy, which is not easy during high oil and gas prices at all. The head of research for International Settlements, Hyun Song Shin highlights:
“Crypto only actually functions when coin prices are rising, and there are inflows of new purchasers. Also, the complete has the process of a Ponzi scheme.”
Public executives complain that the only use of crypto is money laundering and asking for bribes. In August, the U.S. Treasury issued Tornado Cash, a company whose working mechanism offered namelessness for crypto users. The co-founder of Calderwood Capital, Dylan Grice, advises that the foundational crypto dream is not alive: “Crypto is now de facto acknowledged, highly centralized and has absence of privacy.”
To note this, central bankers are replying to the fear crypto shows to their monetary ownership. China is testing a digital yuan. Over 50 million Brazilians use the low-cost Pix payment system, operated by the country’s central bank.
Although, it is persuadable that central bank digital currencies will eventually become crypto’s salvation. If fund, as Fyodor Dostoevsky said, is “minted liberty,” then CBDC has the potential to make a digital cosmic where the central authorities monitor each transaction.
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