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01 / 05
The Promise of Cryptocurrency | Podcast Highlights

Blog Post | Financial Market Development

The Promise of Cryptocurrency | Podcast Highlights

Chelsea Follett interviews Jack Solowey about the potential benefits of cryptocurrency and the regulatory challenges it faces.

Listen to the podcast or read the full transcript here.

Let’s start with the big picture. What is cryptocurrency? 

Cryptocurrency is an application of blockchain technology that leverages cryptography and game theory to create public digital ledgers that are highly secure and highly resistant to tampering. In its best form, cryptocurrency could replace the traditional balance sheets at institutions like banks and brokerages with this open distributed ledger. You’d have something like a bank account balance, but rather than being managed by a centralized intermediary, it’s run by computers all over the world that are incentivized to maintain the database and check each other’s work.

What are some of the benefits of cryptocurrency? 

Crypto is relatively young, so a lot of the benefits are potential benefits. However, we do already see use cases around the world.

Vietnam is one example. The blockchain analytics firm Chainalysis publishes an annual survey of the leading countries for crypto adoption, and Vietnam has led that list for a couple of years. An interesting corollary is that 69 percent of Vietnam’s population lacks access to a traditional bank. I think it’s reasonable to say that cryptocurrency is filling that need.

Can cryptocurrency be a hedge against inflation? 

Ultimately, this is an empirical claim that will have to be evaluated over time. There was some thinking initially that Bitcoin could be an inflation hedge because it has an ultimate cap on its supply. According to the protocol, there will only ever be 21 million Bitcoin minted. But that hasn’t borne out empirically, or at least hasn’t borne out yet.

With that said, there are places around the world where we’ve seen both national currency depreciation and relatively high crypto adoption or spikes in crypto adoption around national currency depreciation events. Examples include Turkey, Nigeria, Kenya, Argentina, and Venezuela.

There’s also a class of crypto token known as stablecoins, which are designed to be pegged to the value of another asset, for example, fiat currencies like the US dollar. Stablecoins have actually been growing in popularity in some of the same countries I just mentioned as a way to access the US dollar.

What about the potential of blockchain technology to combat censorship or resist authoritarianism? 

I think it’s helpful to look at the tactics that are used by the totalitarian regime in George Orwell’s Nineteen Eighty-Four. In that story, control was often a matter of changing and deleting the historical record. The thinking is that if there was no evidence of a free society, the idea of freedom or liberty could be extinguished.

And as we know, totalitarian regimes are not mere fiction. The Cato Institute recently awarded the Milton Friedman Prize to Jimmy Lai, who was the founder of the pro-democracy Apple Daily Newspaper in Hong Kong. When the central government in Beijing applied the draconian national security law to Hong Kong and raided the Apple Daily offices, civic and cyber activists were able to maintain a record of thousands of Apple Daily newspaper articles on a blockchain called Arweave. That is one example where blockchain technology thwarted the Orwellian authoritarian ambition.

What are some of the challenges or potential drawbacks of cryptocurrency? 

Like all financial instruments, crypto can be abused by bad actors, who can use cryptocurrencies to fund terrorist activity and trafficking. However, it’s important to keep this in perspective. Even high estimates of crypto-related illicit activity are an order of magnitude smaller than the UN’s estimate of, for example, total global money laundering each year, and law enforcement agencies in the US acknowledge that crypto has a relatively small role in crime when compared to traditional financial technologies.

Another common critique is that cryptocurrency technology is bad for the environment. 

It’s worth distinguishing here between the two mechanisms underlying major blockchains. You have Proof of Work, which helps secure the Bitcoin network, and because it’s compute-intensive, it’s also electricity-intensive. However, there’s also a different mechanism known as Proof of Stake, which has been implemented by the Ethereum blockchain, the second biggest crypto network by market cap. Proof of Stake reduces energy consumption and carbon footprint by over 99 percent. So, some of the critique needs to adapt to the changing nature of the technology.

But I also think it’s important to keep in mind that this critique begins with the assumption that cryptocurrency is not worth its environmental footprint. I think the role of policymakers is to address downside risks, not to assess the benefits. Regardless of one’s preferred environmental policy, it should apply uniformly and should not single out one specific class of technology.

If cryptocurrency is overregulated, what could be the possible impact of that on the average American? What’s the potential loss there? 

If our policies make the US an uncommonly inhospitable place for crypto, we could lose both the potential gains from this class of technology and the competitive pressure that these innovations put on traditional institutions to improve their own products and services. Crypto is already a very useful tool for sending payments across borders quickly and cheaply.

There are two big problems with how regulators have been approaching this space. One is regulatory ambiguity. Securities laws in the US, at the federal level, are almost 100 years old. It’s not hard to conceptualize how technologies that began as paper stock certificates and are now being replaced with decentralized global networks could pose challenges to existing regulations.

In the 1990s, the SEC actually had a fairly rational rule-making process to adapt laws to new technologies, what are known as alternative trading systems. Laws and rules can keep up with technology if regulators are willing to make those changes. Unfortunately, in the US, we haven’t seen the SEC take the same rational approach to cryptocurrency.

In fact, we’ve seen a bit of gaslighting, where the agency can ask projects to register under existing laws, and the project will say, “Okay, great. Let’s do it.” And then SEC says, “Well, we’re not really sure how to register your project.” And then, a little bit later, the project faces enforcement actions for not registering. It’s not a rational approach to innovation and financial markets.

As of the time of this recording, what are some of the current policy initiatives around regulating cryptocurrency? What are some of the concerns people are wrangling with?

The US is unique in that we have two capital market regulators, the Securities and Exchange Commission, SEC, and the Commodity Futures Trading Commission, the CFTC. This presents an interesting question about cryptocurrencies: should they be treated as a commodity or security?

To answer that question, my colleague Jennifer Schulp and I hone in on decentralization. Decentralization addresses some of the risks that securities regulation is intended to mitigate, which are known as managerial risks. Basically, are the issuers of an instrument going to have information that market participants don’t have, and could they use that information to gain an edge over market participants? Things like insider trading and information asymmetries through disclosures. But when you have a fully decentralized crypto token project, there is no managerial body with that information. So, at a high level, crypto securities are those that are centralized, and crypto commodities are those that are decentralized.

One wrinkle here is that crypto tokens can begin life as centralized projects but evolve into more decentralized projects over time.

Say regulators get this right and allow people to realize all the potential gains of cryptocurrency. What kind of gains could people see? 

In addition to the potential benefits of faster, cheaper payment methods, cryptocurrency promises a more decentralized internet and financial system. Loans could be issued permissionlessly. In the same way that you put a dollar in a vending machine to get a can of soda, you could have lending protocols that, once you put in the designated crypto collateral, you could take out a loan in crypto without some of the traditional gatekeeping by financial institutions. And that’s just one example of this broader ecosystem.

World Bank | Financial Market Development

Mobile-Phone Technology Powers Saving Surge in Developing Economies

“More adults than ever in low- and middle-income countries now have bank or other financial accounts, leading to a rise in formal saving, according to the World Bank Group’s Global Findex 2025 report. This momentum in financial inclusion is creating new economic opportunities.  Mobile-phone technology played a key role in the surge, with 10% of adults in developing economies using a mobile-money account to save—a 5-percentage point increase from 2021.

In 2024, 40% of adults in developing economies saved in a financial account in 2024—a 16-percentage-point increase since 2021 and the fastest rise in more than a decade. Higher personal saving—through banks or other formal institutions—fuels national financial systems, making more funds available for investment, innovation, and economic growth. In Sub-Saharan Africa, formal savings increased by 12-percentage points to 35% of adults.”

From World Bank.

Our World in Data | Financial Market Development

There Are Half a Billion Mobile Money Accounts in the World

“In 2010, there were just 13 million mobile money accounts in the world, fewer than the population of my home country, the Netherlands. By 2023, this had reached more than 640 million. That’s more than twice the total number of Netflix subscriptions worldwide…

What’s immediately obvious is how much of this growth has come from Sub-Saharan Africa; it’s home to more than half of the world’s accounts. In 2023, there were over 330 million active mobile money accounts in the region; more than one mobile money account for every four people.

What’s changed? One of the obvious drivers of this growth has been the widespread adoption of mobile phones, not just in the richest countries but across the globe. Mobile subscriptions have surged in nearly every region.

But the total number of mobile money accounts doesn’t tell us what percentage of people use mobile money. A small portion of people could each have many accounts. So instead of examining absolute numbers, let’s look at the share of people with mobile money accounts in Sub-Saharan Africa.

As the chart below illustrates, the percentage of people in Sub-Saharan Africa with a mobile money account grew rapidly, from 12% in 2014 to 33% by 2021.”

From Our World in Data.

World Bank | Quality of Government

Côte D’Ivoire’s Land Reforms Are Unlocking Jobs and Growth

“Secure land tenure transforms dormant assets into active capital—unlocking access to credit, encouraging investment, and spurring entrepreneurship. These are the building blocks of job creation and economic growth.

When landowners have secure property rights, they invest more in their land. Existing data shows that with secure property rights, agricultural output increases by 40% on average. Efficient land rental markets also significantly boost productivity, with up to 60% productivity gains and 25% welfare improvements for tenants…

Building on a long-term partnership with the World Bank, the Government of Côte d’Ivoire has dramatically accelerated delivery of formal land records to customary landholders in rural areas by implementing legal, regulatory, and institutional reforms and digitizing the customary rural land registration process, which is led by the Rural Land Agency (Agence Foncière Rurale – AFOR).

This has enabled a five-fold increase in the number of land certificates delivered in just five years compared to the previous 20 years.”

From World Bank.

World Economic Forum | Financial Market Development

How the Rise of AI in Indonesia Is Expanding Financial Inclusion

“Indonesia is at a pivotal moment in its digital transformation. With over 280 million people spread across 17,504 islands and over 180 million smartphones, connectivity has never been higher.

Internet penetration approached 79% in 2024, reflecting the nation’s swift embrace of online platforms. Only a decade ago, nearly half of Indonesia’s adult population remained unbanked. Thanks to rapid advancements in financial technology, the financial inclusion index has climbed to almost 84%. Had AI been as pervasive 10 years ago, this transformation could have been even faster.

Though digital adoption is a global trend, Indonesia’s trajectory is distinct, shaped by supportive government policies, a vibrant fintech sector and a surging digital economy.

Over the past decade, these factors have converged to accelerate financial inclusion – from 49% in 2014 to around 83% in 2023. This remarkable leap is equivalent to adding the population of Switzerland seven times to Indonesia’s banking system.”

From World Economic Forum.