Lately, the world of cryptocurrencies has once again drawn the spotlight on it. The total capitalization of cryptocurrencies from $ 800 billion at the beginning of the year, reached 2.5 trillion. dollars in early May, before falling again close to 1.5 trillion. USD in early June. The first and most popular cryptocurrency, bitcoin, moved in a similar direction, rising from $ 29,000 at the beginning of the year to $ 65,000 in mid-April, before hitting a record low of $ 37,000 in early June. . This impressive market volatility is a feature of the crypto-economy world and attracts the attention of both the research community and the investing public.
However, Cryptocurrency is not just bitcoin, nor just ethereum. Behind the impressive price fluctuations, behind the stories of lost e-wallets or forgotten private keys of such wallets hiding millions of euros, behind the tweets of celebrities who raise and drop capitalizations by billions in 24 hours, and back 24 hours and money laundering, evolving and evolving impressively interesting stories. Fundraising mechanisms are built (Initial Coin Offerings – ICOs, Initial Exchange Offerings – IEOs), decentralized lending platforms, Decentralized exchanges (DEX), cryptocurrencies based on blockchain , or even Decentralized Prediction Markets.
All of the above operate without the existence of a central entity, without the intervention of intermediaries (professional intermediaries) and with the payment of smaller commissions. It is no coincidence that these ideas of the so-called decentralized finance (DeFi) have now evolved into specific applications in the crypto-economy ecosystem and are already reflected in the respective cryptocurrencies, which are in the first positions of capitalization. The Crypto-economy is now an entire ecosystem listing close to 10,500 cryptocurrencies, each of which suggests a useful idea, trying to convince the global community that it has a role to play in this ecosystem. Decentralized finance has now evolved into a new architectural proposal for a more efficient and globalized financial system, which has its own trading instruments, its own payment system, its own means of raising funds, its own liquidity mechanisms, its own quasi-banking services.
The most basic feature of the whole ecosystem is the technology on which the ecosystem is built: blockchain technology. A technology impressively adaptable to the idea of āāevery creator of every cryptocurrency. A technology that enables the team / community behind each project to address any negative characteristics that can be attributed to the ecosystem. Blockchain technology is not the only technology that has solved the problem of double spending so that peer-to-peer transactions can be carried out securely. It is also the technology that allowed the creation of stablecoins to deal with the huge volatility in the prices of cryptocurrencies. It is the technology that made possible the creation of what we now call decentralized finance with its respective applications. It is the technology that offers solutions even in the admittedly too energy-intensive transaction validation process (the so-called mining) in the bitcoin network. As long as one has imagination and can use blockchain technology as desired to propose something new and innovative in the ecosystem.
Dangers, of course, exist, as in anything new. The lack of a regulatory framework leaves the consumer exposed to various types of risks. Obvious risks are those of capital loss due to high market volatility and capital loss due to fraud. There is also a new risk, the so-called technological risk, as the entire architecture of each digital currency / decentralized application is based on programming code, which means that if something is not properly designed it is likely to cause malicious attacks on the network and loss of assets.
In a rapidly changing ecosystem such as that of the Crypto-economy, the regulatory and supervisory framework is perhaps the biggest challenge. However, designing a regulatory framework is not an easy task. This is because it is not easy to first understand and then categorize the nature and functions of the various cryptocurrencies that exist in the ecosystem today. For example, it is clear that most cryptocurrencies in the ecosystem today are not financial securities (such as stocks or bonds), as they do not give property rights to the holder, nor do they give access to cash flows. Instead, there are cryptocurrencies that can only be used to transfer value (eg bitcoin), while others (perhaps most) give access to various kinds of utilities, which is a new feature of a financial ecosystem. So how do you set up something so different with so many different features? There are proposals, such as the recent proposal of the European Commission for Markets in Crypto Assets (MiCA), which puts some order in the current uncertainty of the ecosystem.
The questions that arise are certainly many, as are the many issues that need to be addressed. The only thing for sure is that the Crypto-economy ecosystem seems to have come to stay. In five years it is very likely that the ranking of cryptocurrencies in the first places of capitalization will be different, as new ideas will have appeared and new applications will have found their way to recognition. Moreover, the crypto-economy ecosystem is still at an early stage and is currently in a self-testing phase. What is clear, however, is that the financial system of the future will be based more on algorithms and less on human intervention.
* Mr. Nikos Daskalakis is Assistant Professor of Finance and Accounting, Department of Public Administration, Panteion University, Academic Manager of KEDIVIM “Blockchain Economics: Introduction to Cryptocurrencies”
** Mr. Panagiotis Georgitseas is an associate doctor of the Department of Public Administration, Panteion University, analyst XX / XT.
