Like many other critics before him the governor of the Bank of Spain, Lusi Maria Linde has vocalised his dislike of cryptocurrencies, whilst praising the technology behind them. Linde believes that there are just too many risks involved with cryptocurrencies and that these far outweigh the benefits. That said, he is a firm believer that blockchain technology has the power to revolutionise efficiency whilst significantly reducing operational costs.
He stated: “In my opinion, their current use (of cryptocurrencies) presents more risks than benefits: they have low acceptance as a means of payment, suffer extreme volatility, present multiple operational vulnerabilities and have been related to fraudulent and illicit activities in many cases.”
Blockchain vs Crypto
Being able to understand that capabilities of blockchain technology, particularly in the areas of finance is becoming more and more popular. In fact, many large banks and financial institutions are already in the process of testing and implementing blockchain solutions into their business models. For example, even the Bank of America is rumoured to have acquired some blockchain patents, making it another leading name that has moved to adopt the technology.
Despite this vote of approval from various big international names, these institutions are also amongst the first to criticise the associated elements that fuel the technology- that is the issue of cryptocurrencies. Bearing this in mind, we must consider the question. How far can blockchain go without crypto?
This is a debate that has been going on for as long as both concepts have existed, but to decide how implementable either option is, there must be a proper and mutual definition of what each entity is.
Using layman’s terms, a blockchain is a digital ledger which records transactions in a chronological and public way. The blockchain is powered by tokens that can evolve into cryptocurrencies depending on their liquidity and the ability for them to be exchanged with other fiat or cryptocurrencies.
There are also private blockchains which are owned by organisations that place restrictions on the functioning and use of the network. The main difference between a private and public blockchain relates to who is able to take part in the network, make transactions, see the records, and maintain the ledger. A public blockchain network is open to everyone and even encourages more people to join it. Private blockchain offers limited access to authorised members only.
Many crypto and blockchain enthusiasts believe that the reason traditional institutions are wary of this new technology is that it would mean that they lose their control over the market, above and beyond anything else. Whilst the technology is still emerging, blockchain at the moment is perceived as a decentralised, democratic and self-regulatory technology.
When we consider the democratic nature of the blockchain and note that the network involves individual nodes that need to remain engaged, it is clear that cryptocurrencies are the main incentives. For this reason, a truly decentralised blockchain will depend on crypto coins to stay both relevant and alive. Therefore, running a private blockchain means that you are just maintaining a closed network and deliberately neglecting any economic value that the tokens may have to offer.
One could interpret the criticism from individuals such as Linde, as a vote of confidence in the future value of the system, not as a denial of the existence of its potential.