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Risks of Cryptocurrencies

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Risks of Cryptocurrencies, illustration

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Cryptocurrencies, although a seemingly interesting idea, are simply not fit for purpose. They do not work as currencies, they are grossly inefficient, and they are not meaningfully distributed in terms of trust. Risks involving cryptocurrencies occur in four major areas: technical risks to participants, economic risks to participants, systemic risks to the cryptocurrency ecosystem, and societal risks. Fortunately, for all but the last case, there is little risk to anyone not directly participating; (see the article "Privacy in Decentralized Cryptocurrencies" on page 78 in this issue).

Cryptocurrencies are tradeable cryptographic tokens, with Bitcoin as the most famous example. Bitcoin, developed by a pseudonymous creator, Satoshi Nakamoto, consists of a distributed public ledger system showing all balances associated with public keys. To spend Bitcoin, someone with the corresponding private key signs a message indicating the particular balances should be transferred to a set of destinations and then broadcasts this message through a peer-to-peer network.


Fritz Henglein


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