As the internet continues to transform our modern world, new developments in distributed ledger technologies (DLTs) promise to revolutionize the monetary system as we know it. A leading example is the emergence of digital asset economies, which encourage users to buy and sell data secured on the blockchain as a form of commodified token. Yet even as a growing number of technologists, investors and nation-states have embraced virtual assets as the next iteration of finance, these economies face an uncertain political future due to their novelty, opacity, and traditional role of the state in money creation. Moreover, given the rapid uptake of these products and the continued lack of regulation, additional evidence-based discussion is needed to appropriately understand the effects of this phenomenon and to target legislation accordingly. Therefore, my analysis draws upon the findings of 17 peer-reviewed articles to highlight the impact these digital asset economies have across six public policy domains.
Use for Payments
A majority of studies found that digital assets could prove more useful for monetary transactions than existing systems. In particular, Rueben Grinberg (2012) reviewed developer websites and coding databases to highlight the ease of sending microtransactions compared to centralized businesses like Apple or PayPal. Several studies also determined that financial transactions benefited from digital assets being cheaply executable in real-time. More recently, three prominent authors noted blockchain technology had the potential to ensure digital assets could make economic resources transferable regardless of space, time and cost, using a survey approach (or a time series) to track each asset’s effect on price with distance.
However, some articles flagged concerns about the speed and durability of digital assets. Grinberg (2012) highlighted that Bitcoin competed with products facilitating internet payments and was unlikely to remain competitive if rivals could lower their prices. In addition, Marthinsen and Gordon (2020) cited the scalability of DLT networks as one of the industry’s biggest challenges, noting that current dollar-pegged asset networks (“stablecoins”) such as Tether processed a maximum of only 270,000 transactions a day.
Data Security, Fraud, and Crime
Certain authors focused on underlying blockchain platforms for increased data retention and distributed hosting responsibilities, even as concerns about illegal activities dominated. Catilini and Gans (2019) found that blockchain technology could prevent information leakage by allowing participants to verify transactions conducted in a digital token. However, their abstracting away of technical systems may have complicated the external validity of this study depending on the token configurations involved.
Another area of major agreement was the possible use of digital assets for criminal activity, centering on the ease of employing virtual currency to evade taxes, purchase drugs, and launder money compared with physical currency or bank deposits. This was due to the pseudonymous nature of transactions and the greater comfort involved compared with physical currency-based crimes. Intriguingly, however, Saiedi, Brostrӧm, and Ruiz (2021) found greater demand for bitcoin architecture in countries that underwent inflation crises, accounting for geospatial usage to deduce each country’s socio-economic circumstances. While these findings do not invalidate the role of digital assets in crime, they suggest that crime and the presence of digital assets may be correlated based on the individual environment rather than from causal impact.
Decentralization and Technological Stability
Studies addressing the impact of digital assets on technological stability and centralization found that networks increased decentralization and democratized data access, pushing financial power to users. Niranjanamurthy, Nithya, and Jagannatha (2019) articulated blockchain data as “complete, consistent, timely and accurate,” while other authors noted that digital asset networks could better withstand malicious attacks to their lack of a single point of centralized failure.
Conversely, Spithoven (2019) found that the use of digital assets for emerging ‘distributed finance’ applications, also known as DeFi (involving products like automated lending platforms and interest accounts), required inordinate knowledge to navigate, and even Grinberg (2012) expressed concern that the technology could fail if wallet addresses were entered incorrectly. Niranjanamurthy, Nithya, and Jagannatha (2019) also found that the performance of services hosted on centralized servers would always be faster and less limited than those hosted on blockchains but would sacrifice decentralization.
Political Viability and Government Recognition
Extant studies were mixed on the political viability of digital assets. According to Grinberg (2012), the lack of government recognition was not ipso facto an impediment to adoption, with other examples of unsupported currencies such as the “Iraqi Swiss Dinar,” circulating successfully for long periods. Additionally, Stewart (2017) found that digital asset-powered smart contracts might enhance positive behavior by users by creating a “mythical” level of legal obligation as users became “digital citizens.”
However, many authors expressed uncertainty about how far such analogies extended. For example, Spithoven (2019) charged that without strong external regulation, cryptocurrencies might come to resemble a “Veblenian” market featuring predatory behavior. Likewise, Grinberg (2012) noted that confidence in certain digital assets could collapse without appropriate guidance, either with the development of superior technology or significant government crackdown.
Notably, relevant studies reached a universal agreement that the volatility of digital assets did not represent a danger to investors. Some suggested they might function as a safe haven from inflation brought on by excessive money debasement, while others quantitatively proved that assets like Bitcoin do not represent a “systemic risk” and dismissed fears of a digital asset “bubble.”” Adrian and Mancini-Griffoli (2019) sounded the only note of caution toward volatility but acknowledged the potential for high return-on-investment.
Energy usage represents an ever-growing concern in popular debates but was notably absent from the majority of the reviewed literature. Denisova, Mikhaylov, and Lopatin (2019) noted that such comparisons remain difficult to make given the high energy usage of traditional banking, with some metrics suggesting digital assets may be a net positive factor for the environment due to their promotion of green energy.
Denisova, Mikhaylov, and Lopatin (2019) ultimately found that the use of digital assets might encourage the efficient usage of electrical power in traditional energy markets, and the development of new possibilities for the creation of distributed solutions. But Niranjanamurthy, Nithya, and Jagannatha (2019) found that still-dominant Bitcoin represented the greatest energy expenditure among blockchains, requiring immense power in the transaction validation process. This continues to be problematic for countries that rely on cheap hydrocarbons, even if Bitcoin miners have a greater tendency to use renewable energy overall.
In addition to the need for further evidence-based research, peer-reviews of established scholarship play a vital role in the fact-checking popular convention, such as examining notions that volatile pricing and energy consumption make digital assets unsustainable. In the same vein, policymakers must avoid a one-size-fits-all approach when addressing the benefits and risks of adopting digital assets. Instead, as both bans and deregulation expose society to unnecessary harm, regulators should take an approach that preserves benefits for payments, decentralization, and financial upside while still addressing the risk of crime, instability, and energy waste. After all, while digital assets may seem like “phantom finance” to many, the need for measured regulation and the impacts it could have on American prosperity are likely to be very real indeed.
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